D&O insurance pros: Prepare for tougher 2024, Allianz says
There may simply be too many global challenges to maintain D&O's recent soft market conditions.
Some of the biggest recent threats to professional lines insurance products in general, and directors and officers coverage in particular, are expected to expand in the New Year, according to Allianz Commercial’s 2024 D&O Insurance Report.
Insurance experts in 2023 noted that professional lines were among the products less impacted by this year’s hard market conditions than other types of coverage. That environment may shift as we head into 2024, Allianz reports.
“Buyers of D&O insurance from public and private companies have benefited from favorable pricing and broader coverage through 2023, helped by factors such as new market entrants and the stable trend in US securities class action filings,” Vanessa Maxwell, global head of Financial Lines at Allianz Commercial said a press release about the new report. “However, there is still a lot of risk facing D&Os and their insurers. Inflation continues to bite, influencing future claims through larger settlement values — at a 10-year high — and greater defense costs. The higher cost of refinancing debt is proving a shock. Insolvencies are rising, geopolitical uncertainty is considerable, cyber risk is elevated, and ESG claims are here to stay and proving challenging.”
Allianz added that the world has settled into a challenging “new normal” on the other side of the COVID-19 pandemic, largely driven by economic headwinds.
“Economic growth across the globe remains disappointing,” the carrier said. “Business insolvencies are expected to rise by +10% in 2024… Inflationary pressures remain, and refinancing of existing debt after years of low interest rates is a new test for many.”
Two ongoing wars — in Ukraine and the Middle East — add to the uncertainty, in addition to other geopolitical tensions.
Jarrod Schlesinger, regional head of Financial Lines in North America at Allianz Commercial, said in a prepared statement that insurance professionals working in the D&O space need to ready themselves for a less comfortable business environment than they experienced in 2023. Being nimble and prepared with adaptable client strategies will be essential going forward.
“Diversity in the boardroom continues to allow companies to have varied approaches when presented with problems,” Schlesinger said. “To assist with the challenges ahead, the C-Suite should push beyond the norm in their industry and allow themselves a better chance to be on the front foot for the future.”
One bright spot may be the potential applications of generative artificial intelligence, or technologies that quickly process large volumes of data and provide humanlike responses. Allianz said GenAI will likely impact everyday processes at corporations and businesses in 2024. Of course, concerns arrive alongside any optimism over GenAI.
“AI’s potential to create competitive advantages is exciting but there are also challenges with its adoption that companies should consider, such as threats to cyber security, increased regulatory risk, unrealistic investor expectations about its capabilities, as well as managing misinformation,” said Hannah Tindal, a regional head of Commercial D&O at Allianz Commercial.
Other challenges facing the D&O marketplace in 2024 are likely to include increased litigation, regulatory and court actions around environmental, social and governance (ESG) policies, and fallout from the 2023 banking crisis in the U.S., which pushed up interest rates as well as financial fraud claims and litigation.
“Not every stakeholder holds the same view on an issue or the same view as to what actions directors should take,” Allianz Commercial Head of Global Financial Lines Claims David Ackerman said in a statement. “In a world that is becoming increasingly polarized, politically and socially, the very need for directors to evaluate and address the impact of various ESG factors on corporate value creates risk that claims will be made, by activist shareholders or other motivated stakeholders, on either or both sides of any given issue.”
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