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Digital EditionDirectors and Officers Face Rising AI and Geopolitical Risks: Allianz Commercial
Directors and officers are facing heightened risks in 2025 due to geopolitical conflicts, regulatory scrutiny, and the rapid integration of artificial intelligence (AI) into business operations, according to Allianz Commercial’s D&O Insurance Insights report.
In today’s interconnected global economy, the ongoing conflicts in Ukraine and the Middle East, coupled with tensions between the United States and China, have led to significant supply chain disruptions and business interruptions. These events have also heightened the potential for shareholder lawsuits and regulatory penalties, as companies struggle to navigate the volatile international landscape, the report noted.
“The D&O insurance market has remained competitive for buyers over the past year, but loss potential is still high,” says Vanessa Maxwell, chief underwriting officer, Allianz Commercial. “The global rise in business insolvencies is a particular focus of concern, with companies and leaders exposed to potential claims from lenders seeking to recover funds, or from shareholders who allege breach of fiduciary duty.”
Companies operating in multiple jurisdictions must contend with intensified regulatory scrutiny and the possibility of non-compliance with international sanctions. Directors and officers can be held accountable for misjudging the impact of geopolitical developments on their company’s operations.
As Jacinda Da Rosa, global underwriting head of multinational, financial lines, at Allianz Commercial, noted, “D&Os need to update their knowledge around geopolitical and regulatory changes more regularly than before. A once-a-year review is no longer sufficient in the volatile era businesses are now operating in.”
AI Exposures
While geopolitical risks continue to evolve, a new frontier of challenges has emerged with the rapid integration of AI into business operations, the report stated.
Companies rushing to adopt AI technologies face myriad risks, including allegations of “AI washing,” data security breaches, and privacy concerns. The potential for AI “hallucinations” – where AI generates fabricated responses – adds another layer of complexity to these exposures.
“AI is a potential business game-changer, and we have barely scratched the surface of its legitimate business applications. It’s real and it’s here to stay, but it’s in its early stages and presents many unknowns, which will always be an issue for D&O underwriters,” said Jarrod Schlesinger, global head of financial lines and cyber at Allianz Commercial.
A rise in AI-related litigation underscores the growing risks in this area. Between March 2020 and October 2024, 38 AI-related federal securities class action lawsuits were filed in the United States, with 13 of those occurring in 2024 alone, the report noted.
AI Governance and Board Involvement
The role of corporate boards in AI governance has become a topic of heated debate. Some argue for increased board oversight due to the high stakes involved, while others warn that excessive involvement could stifle innovation, according to the report.
Dan Holloway, head of global management liability commercial at Allianz Commercial, advocates for a proactive approach to AI governance at the board level.
“Boards must understand AI use cases, potential benefits, and set the risk appetite to ensure risk mitigation is in place. Compliance oversight should include existing obligations on privacy, cyber security, discrimination, and IP, while monitoring and reporting should cover off performance, risks, and compliance status through clear reporting lines and metrics,” he said.
Economic Uncertainty and Market Dynamics
The global business landscape is facing significant challenges as insolvency rates continue to climb. According to Allianz Trade projections, global business insolvencies are expected to rise by 11% in 2024, with countries accounting for more than half of global GDP experiencing double-digit increases. The outlook remains grim, with a further 2% increase anticipated in 2025 before stabilizing at high levels in 2026.
These insolvencies are expected to put over 1.6 million jobs at risk in Europe and North America alone. Particularly vulnerable sectors include construction, retail, and services. In the United States, insolvencies are forecasted to rise by 12% in 2025 before declining by 4% in 2026.
D&O Market Trends
The D&O insurance market in the United States is experiencing a period of relative softness, Allianz reported. Rate decreases continue for certain types of accounts, such as IPOs, SPACs, and de-SPACs.
Publicly traded companies are seeing a moderation in the more drastic rate decreases observed at the start of 2024. Both private and public company accounts are trending toward flat rates, with carriers working to maintain high retention rates in their portfolios, according to the report.
Despite softer market conditions, there has been little change in insurance buying behavior. Some insureds have taken advantage of rate decreases to purchase additional limits with the cost savings obtained.
Claims frequency and severity are on the rise in the financial lines sector. For the first time since 2019, the likelihood of an insured being sued has increased, according to Allianz. Private company employment practices liability (EPL) claims have seen a moderate increase, attributed to factors such as the Great Resignation, layoffs in certain sectors, and the focus on returning to the office.
Looking ahead to 2025, public company renewals are likely to see flat to slightly positive rates. Private companies, particularly those in challenging sectors, can expect measured rate and self-insured retention (SIR) increases. If the overall economy and M&A activity pick up, carriers may find more opportunities to write new business in 2025.
Access the full findings from Allianz here. &
