Risks arising: D&O insurance evolves

September 2026  |  FEATURE | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

September 2026 Issue

The corporate world is an arena full of risk, particularly for those occupying the highest levels of company leadership. For directors and officers (D&Os), falling foul of regulations, stakeholders or legal obligations can have severe consequences.

Among the key exposures are corporate governance failures, financial distress, regulatory compliance issues, cyber security incidents and employment practices claims, each with the potential to cause significant reputational damage, personal liability and substantial legal costs.

The risk landscape is also evolving at an unprecedented pace. Established exposures are being joined by a range of emerging pressures, including artificial intelligence (AI)-related litigation and ‘AI washing’, rising corporate insolvencies, increased regulatory enforcement and growing scrutiny of climate-related risks.

“Technology risks cover a large spectrum but dominant themes are cyber and AI governance risk,” says Cain Jackson, managing partner, clients & markets at Wotton Kearney. “How companies adopt AI and manage the array of risks that entails is front and centre. Also a concern are the challenges posed by geopolitical risk, which has elevated supply chain risk and its permutations.”

AI governance has become a particularly significant concern for boards. Regulators, investors and insurers are increasingly scrutinising how companies deploy AI technologies, oversee associated risks and communicate AI capabilities to the market. Allegations of ‘AI washing’ – where organisations overstate the sophistication, readiness or benefits of AI initiatives – are emerging as a growing source of liability exposure for D&Os.

Allianz Commercial’s recent D&O insurance insights report states that D&Os can be held accountable for misjudging the impact of geopolitical developments on their company’s operations or for failing to adapt adequately to legal and regulatory requirements in different jurisdictions. Liability may arise through shareholder lawsuits or regulatory penalties directed at both the organisation and individual decision makers.

Against this backdrop, D&O insurance has become an essential component of a company’s governance and risk management framework. Policies typically cover legal defence costs, settlements and compensation in a wide range of scenarios.

Tailored coverage

Designed to protect D&Os and other senior leaders, D&O insurance provides cover against claims arising from alleged wrongful acts committed while carrying out their duties. These may include breaches of fiduciary duty, negligence, errors or omissions, misstatements and other management decisions.

“D&O insurance should be the last line of defence and should be constructed with such in mind,” says Robert Regueiro, senior vice president at CAC, part of The Baldwin Group. “Current D&O insurance market conditions allow for broad, highly manuscripted coverage which all companies should review every year to ensure coverage captures the company’s evolving risk profile.”

According to Vouch’s 2026 Understanding Directors & Officers (D&O) Insurance analysis, a robust D&O insurance programme generally comprises three layers of protection known as sides A, B and C.

Side A protects individual D&Os when the company cannot indemnify them. This is particularly important during insolvency or where indemnification is legally restricted.

Side B reimburses the company when it indemnifies D&Os for covered claims.

Side C provides entity-level protection when the company itself is named in a lawsuit. For public companies, this typically relates to securities claims. For private companies, the scope of cover may be broader, depending on policy wording and structure.

Together, these protections help ensure that both the company and its leadership team are protected when high-stakes decisions are challenged. Without D&O insurance, leaders may be required to fund their defence using personal assets, including homes, savings and investments, regardless of whether allegations are ultimately proven.

It is equally important to understand what is not covered. Common exclusions include intentional fraud or criminal conduct once legally established, bodily injury and property damage claims, professional services errors relating to products or services, and most employment-related claims such as harassment, discrimination and retaliation.

A growing market

Currently valued at approximately $10.33bn, the D&O insurance market is expected to grow to around $28.47bn by 2033, according to Market Research Intellect. Growth is being driven by increasing demand across commercial, industrial and technology sectors, alongside ongoing innovation, expanding use cases and rising investment across end-user industries.

According to Next Move Strategy Consulting (NMSC), several factors continue to support demand for D&O insurance.

Increasing corporate accountability and regulatory scrutiny are encouraging organisations to seek stronger protection for executives and board members.

The growth in initial public offering activity, M&A and international expansion is creating greater demand for executive liability cover capable of addressing complex legal and financial risks.

At the same time, digitalisation is reshaping underwriting practices. Insurers are increasingly using advanced analytics, AI-driven risk assessment tools and more tailored underwriting models to assess risks and develop coverage solutions.

The market is also segmented by insurance type, enterprise size, distribution channel, end user and geographic region. Insurance categories include employment practices liability, fiduciary liability and other executive risk products.

“In Australia, the D&O insurance market is evolving with climate, technology and geopolitical risk the dominant drivers,” notes Mr Jackson. “On climate, regulatory focus on greenwashing and new climate risk disclosure obligations under the Corporations Act are key factors. Technology risk is rapidly evolving and is probably the number one issue for most D&Os and their insurers.”

The introduction of Australia’s mandatory climate-related disclosure regime has further elevated directors’ responsibilities. As reporting obligations are progressively phased in, boards are under growing pressure to demonstrate effective oversight of climate-related risks, governance processes and corporate disclosures.

Despite its importance, D&O insurance uptake continues to be hindered by limited awareness and a lack of understanding of policy structures.

According to NMSC, many organisations, particularly small and medium-sized enterprises, struggle to navigate policy exclusions, indemnity limits and claim scenarios. This can result in underinsurance or misunderstanding of available protection.

Coupled with the perception that D&O insurance is expensive or optional, this knowledge gap remains a barrier to wider adoption.

Geographic outlook

Regional economic conditions, technology adoption rates, regulatory frameworks and demand patterns continue to shape growth opportunities across the global D&O insurance market.

North America remains a leading market, with recent developments indicating more competitive pricing and broader cover availability. In Europe, the D&O landscape continues to be influenced by varied legal systems and regulatory frameworks.

The Asia-Pacific region presents a particularly dynamic environment, supported by economic expansion and increasing emphasis on corporate governance. Elsewhere, including Latin America, the Middle East and Africa, D&O insurance markets remain at varying stages of maturity and development.

Growth across these regions is closely linked to economic progress, evolving legal frameworks and broader adoption of corporate governance standards.

“What distinguishes Australia from Europe and the broader Asia-Pacific region is the combination of its class action regime, which supports shareholder litigation, alongside proactive and relatively well-funded regulatory enforcement across a number of regulators,” says Mr Jackson. “That interplay has made Australia a relatively high-exposure jurisdiction for D&Os compared to other regions within Asia-Pacific, but it remains a far cry from the US.”

Rethinking risk

As risks become broader and more interconnected, D&Os are being forced to reassess how they identify, evaluate and manage threats.

Many D&Os are seeking greater support from insurance partners, looking for insurers that can help identify and mitigate risks as well as provide protection against the costs of legal action.

“Amid uncertain conditions, D&Os should focus on the factors they can control, like strong corporate governance,” suggests Mr Regueiro. “Best practices such as maintaining an independent board, documenting board deliberations and proactively addressing emerging risks can help reduce both the likelihood of litigation and the ability of plaintiffs to allege wrongdoing.

“Regularly stress testing operations and financials for various scenarios also helps companies understand overall exposure and how insurance can effectively protect against downside risk,” he continues. “Organisations that proactively assess risk are better positioned to manage challenges, while those that do not often find themselves reacting to adverse events with less control over the outcome, with increased scrutiny from shareholders.”

Likewise, Mr Jackson sees D&Os and their boards rethinking risk in a more holistic and strategic manner. “We have seen an interesting shift where previously disparate risks are now recognised as being interconnected and, in many cases, amplify one another,” he affirms. “Geopolitical tension, for example, feeds directly into supply chain disruption, which in turn drives financial stress.”

As a result, boards are increasingly examining risks through an enterprise-wide lens. Cyber security, AI governance, climate disclosures, regulatory compliance and financial resilience are no longer treated as isolated issues but as interconnected exposures capable of creating cascading consequences across an organisation.

Stabilising premiums

The D&O market has largely transitioned from the hard-market conditions seen earlier in the decade. Increased insurer capacity and stronger competition have contributed to stabilising premiums, broader policy terms and improved availability of cover for many buyers.

The Baldwin Group’s D&O benchmarking research, conducted in collaboration with Nasdaq, found that approximately 54 percent of companies experienced year-on-year premium movements within plus or minus 10 percent, while 30 percent recorded decreases of between 10 and 30 percent. Just 10 percent benefitted from reductions greater than 30 percent, signalling a market that is stabilising rather than continuing to soften.

Industry differences remain significant, the report notes, highlighting that market conditions are not evolving uniformly across sectors. Healthcare and technology companies continue to attract some of the highest premiums and retentions.

Meanwhile, materials, consumer discretionary and industrial businesses have experienced some of the largest premium reductions as pricing adjusts following earlier volatility.

Even so, insurers remain cautious. Growing concerns surrounding AI governance, cyber security oversight, insolvency risk and regulatory enforcement mean underwriting discipline remains firmly in place despite generally favourable market conditions.

Ongoing discipline

Today, D&O insurance is widely regarded as a strategic necessity. As expectations surrounding ethical leadership, transparency and accountability continue to rise, it provides a vital financial safeguard against litigation, compliance failures and fiduciary duty claims.

“I expect D&Os to continue to navigate uncertain conditions and volatile markets for the foreseeable future,” affirms Mr Regueiro. “While the risk of regulatory enforcement may be lower given recent rollbacks of certain Securities and Exchange Commission rules, boards and executives should continue to operate under a disciplined, high-standard governance framework which will limit future exposure under a different regulatory environment.”

For Mr Jackson, economic pressures are among the factors most likely to make the D&O environment more challenging.

“Insolvencies are a – if not the – key driver of claims against D&Os,” he asserts. “Uncertainty driven by AI disruption and geopolitical events will also heighten risk for D&Os as boards are increasingly required to make business-critical decisions at speed, and based on imperfect and evolving information.

“A board’s ability to demonstrate that decisions were properly informed, tested and documented will be paramount,” he notes. “In these circumstances, D&O insurance is a necessity, not an option, and appropriate cover backed by sophisticated and customer-focused insurers is essential.”

As the risk landscape continues to evolve, D&Os face increasing expectations from regulators, shareholders, employees and customers alike. The ability to demonstrate strong governance, effective oversight and sound decision-making processes is becoming just as important as the financial protection that D&O insurance provides. For many organisations, ensuring that both elements work together will be critical to navigating the next generation of corporate risks.

© Financier Worldwide

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Fraser Tennant