Report | December 2022
Directors and Officers Insurance Insights 2023
Boards of management are vulnerable to a litany of business exposures, any of which could potentially derail the financial health, continued service and reputation of any company. Following are five D&O mega trends companies should watch for and guard against in 2023, according to Allianz Global Corporate & Specialty (AGCS) financial lines and D&O experts.
5 mega trends to watch in 2023
1. Economic and recession risks
At the start of 2022 post-pandemic supply chain bottlenecks, higher energy and transportation costs, and shortages of labor were already contributing to higher inflation. When the war in Ukraine started in February this further fueled global inflationary and supply chain pressures, causing price shocks for a wide range of commodities, including energy, food and construction materials.
2. Cyber security struggles
Whether it is a ransomware, supply chain or data breach incident, companies face an evolving landscape of cyber security threats in today’s booming digital economy, ensuring the days of cyber risk being regarded as just an issue for IT are firmly in the past.
Today, issues such as data security and information protection are key C-suite concerns, with cyber security resilience increasingly seen as a vital element of any business, given the potential costs and consequences of dealing with a cyber incident together with the expansion of tougher data breach and privacy regulations around the world.
3. ESG disclosures and exposures
In October 2022, the EU Banking Authority (EBA) published a report on how to incorporate environmental, social, and governance (ESG) risks in the supervision of investment firms [1] – recommendations include setting out foundations for integrating ESG risk-related considerations in the supervisory process.
4. US class action securities litigation
The number of new filings during the first months of 2022 suggested that this would be a banner year for securities class actions against so-called Special Purpose Acquisition Companies (SPACS). These have enjoyed a surge in popularity in recent years as they represent a faster track to public markets but, at the same time, have also come under increasing regulatory scrutiny. However, new filings significantly dropped by mid-year, with only two filings in Q3 and one in October at the time of writing.
5. Antitrust and competition risks
On July 9, 2021, US President Joe Biden signed an executive order titled “Promoting Competition in the American Economy”. This order established the policy of more aggressively enforcing existing antitrust laws to combat excessive concentration in industry. [2] In his speech that day, the President singled out the pharma, tech and agriculture industries. He noted that 40 years ago, the government had pulled back on enforcing antitrust laws, and concluded that this “experiment” had resulted in less growth, weakened investments and fewer small businesses. [3]
Market dynamics: the state of the D&O insurance sector
Billions of dollars of premiums are collected annually for D&O insurance, but the profitability of the sector has suffered in recent years, which has led to hard market conditions driven by higher premiums, tighter terms and selective deployment of capacity for both primary and excess layers. Global insurance pricing for D&O recorded double-digit increases in all key markets in 2021, according to third party data, but has begun to stabilize in 2022 with rate softening and declining premiums during a year of continued market improvement. Where will the market go in 2023?
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