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Difficult economic conditions to drive D&O claims in 2023

The international insurer said the ongoing energy crisis and supply chain issues could put pressure on company results

Insolvencies expected to increase 19% next year, likely leading to an increase in litigation against companies and their boards, AGCS predicts

Directors' and officers' (D&O) insurance claims are predicted to rise in 2023 in the wake of difficult economic conditions, Allianz Global Corporate & Specialty (AGCS) has said.

Poor financial performance and insolvencies are among the main drivers of litigation against companies and their directors, AGCS said. It warned that economic uncertainty and the prospect of a global recession in the year ahead could lead to a rise in claims.

The corporate and specialty risk insurer said inflation, the ongoing energy crisis and supply chain issues could put pressure on company results. Overall insolvencies are expected to increase 19% in 2023.

“There is still a lot of risk facing insurers as macroeconomic issues and a potential slowdown loom, conditions which, typically, lead to an uptick in D&O claims,” said Vanessa Maxwell, global head of financial lines at AGCS, adding inflation would also like lead to larger settlements.

Cyber security and environmental social and governance issues (ESG) were also creating more risk for D&O insurers, AGCS said. 

Data security and information protection were now core areas for directors to watch, with board members now expected to develop and maintain accountabilities for IT security in the event of a cyber incident.

Similarly, AGCS noted an increase in reporting and disclosing requirements around ESG topics that could trigger claims for non-compliance, as well as a growing risk of litigation from environmental or climate groups or actives investors.

There were 1,200 cases of climate change litigation filed internationally in the eight years since 2014, compared with just 800 in the previous eight years, AGCS said.

“Cyber risk remains at an elevated level and is now seen as a core duty of D&Os, with increasing scrutiny on how they respond,” said Maxwell.

“Meanwhile, ESG-related liabilities – whether it is inadequate action on climate change or diversity and inclusion issues – can potentially become significant exposures for D&O insurance as well,” she said.

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