Author: Priya Cherian Huskins
Great brokerages listen to their insurance carrier partners to better understand how they view risk. Unlike many commentators, insurance carriers have real skin in the game when it comes to making predictions about the D&O risk landscape.
In the 10th annual Underwriters Weigh In™ Survey, Gallagher surveyed more than 35 public company D&O insurance underwriters. The findings suggest that change is on the horizon when it comes to both the D&O litigation and the D&O insurance environment as we head into 2027.
This article is the first of two that analyze our survey results. Here, I'll discuss the results related to the D&O liability threat landscape. In the second article, I'll discuss insurance underwriter predictions for the D&O insurance market.
From AI risks to shareholder suits and rising defense costs, underwriters see several forces shaping D&O exposure over the coming year. I'll highlight some key findings in the data.
Is D&O risk escalating?
Eighty-eight percent of underwriters believe that risk will go up in the following year, compared to 83% in 2025.
That said, it's the first time in this survey's history that any respondents have said D&O risk is decreasing, albeit a small percentage (2%).
AI is a major driver of D&O risk
On a scale of one to 10 — one being the least likely and 10 being the most — 42% of underwriters surveyed said "seven" when assessing the likelihood of significant litigation and regulatory enforcement related to "AI washing."
Still, underwriters are broadening their focus and looking beyond AI washing as the major AI risk today.
Instead, AI is the backdrop behind trends like soaring company valuations, heightened investor expectations and competitive disruption, all of which are increasing public company D&O exposure.
Underwriters are right to open the aperture when it comes to AI risk. At the time the survey was distributed, the latest AI challenge, derivative suits related to copyright issues, hadn't yet been filed.
Stock valuations and volatility increase exposure
Underwriters view the all-time-high stock markets, large and volatile IPOs and significant stock swings as major sources of exposure.
In commentary on the survey, one underwriter warned that D&O rates haven't kept pace with increases in market capitalization over the past five years, and larger market caps are contributing to higher settlement values.
This leads to a practical tip from the underwriting world: Companies should consider how much their market cap has increased and whether their insurance limits have kept pace, lest insufficient limits fail to cover settlements.
Shareholder suits a major concern
Ninety-three percent of underwriters say companies should be more worried about shareholder litigation than government enforcement actions.
In fact, a majority of underwriters (85%) are concerned about evolving derivative-suit risk as they think about quoting Side A insurance in 2027.
One underwriter commented that the industry needs to recognize that Side A is no longer "free money," as plaintiff attorneys continue looking for ways to access those limits.
While only 15% of underwriters said they're most concerned about bankruptcy risk, some noted that they're watching signs of distress in private credit and are questioning whether companies that relied on it will be able to refinance their debt.
Companies underestimate frequency, cost of litigation
Seventy-six percent of underwriters believe companies aren't as aware as they should be of the frequency and cost of D&O litigation.
One underwriter commented that companies believe that just because they're well run, they're protected from shareholder litigation. Another suggested that some companies might just be naïve about how the plaintiff bar works.
Rising legal costs are depleting limits
Rising legal costs are another area of concern because they're causing insureds to reach their D&O limits faster.
One underwriter noted these costs were quickly "burning through the first three layers" of some programs.
The risk is that less insurance will be available for settlements and that these costs could ultimately put pressure on deductibles and premium rates.
Managing D&O risk starts at the top
For all the risks that directors and officers face, the CEO and board of directors are the roles underwriters view as most critical for mitigating risk.
Thirty-nine percent of D&O underwriters say the CEO has the most important role in managing exposure, while 29% say it's the board.
Perhaps more troubling, underwriters have seen a dramatic decline in the influence of general counsels over the last decade. For companies that have them, including strong general counsels in insurance, underwriting meetings may pay dividends.
What does this information mean for insureds?
It's easy to be a commentator when it comes to D&O risk. Who in the corporate governance industrial complex doesn't have an opinion?
But when the battle starts, for example, threatened litigation or enforcement actions, the distinction between commenting on risk and being an insurance underwriter that has capital on the line becomes more apparent.
But insureds and the advisors who serve them may do well to take note of the predictions and prognostications of D&O insurance underwriters, the folks who are putting up capital when it comes to D&O risk.
The next article in this series will report on survey results related to the evolving insurance.
