The Financial, Executive & Professional Risks Practice (FINEX) of Willis, a WTW business, collaborates with professionals throughout the directors’ and officers’ (D&O) liability insurance industry to gain perspective into the many facets of our business. In our “D&O Professionals Series,” we feature professionals from various corners of the industry, from executive D&O underwriters to securities litigators to coverage counsel and others. Our objective is to discuss how ever-changing conditions in the economy, in government and in business have impacted D&O risk, securities litigation and our industry more broadly.
In this edition, we feature Anne Hardner, Executive Vice President and Head of Arch Insurance Group’s Executive Assurance Division, and Jeremy Moen, Senior Vice President and manager of Arch’s Executive Assurance, Healthcare and Warranty and Lenders Solutions Claims Departments.
We’re thankful to Anne and Jeremy for their contributions to our series.
Willis: Looking ahead, what is your short-term and long-term D&O market outlook?
Anne Hardner/Jeremy Moen: The D&O market is both diverse and highly nuanced, encompassing public and private commercial companies (including large organizations within the Fortune 500), as well as various firms in the financial institutions (FI) sector. Each segment faces its own unique trends and challenges in the future.
In the public commercial space, rates are currently flattening after three years of softening prices. Particularly for 2025, we predict that these rates will remain stable in the short-term, though current pricing levels could be considered marginally adequate, if not inadequate. As a result, the medium to long-term outlook suggests that, depending on both supply and demand, and the state of securities class actions (SCAs), rates could begin to rise.
For private companies, the market remains highly competitive, and in the short term, this competition is likely to remain strong. However, the longer-term outlook will be influenced by factors such as bankruptcy rates (which significantly impact D&O losses) and the ongoing frequency and severity of employment practices liability (EPL) losses, which are especially pertinent in litigious jurisdictions such as California.
The FI sector is a relatively stable market, although certain pockets of pain persist. Depending on the macroeconomic environment, we expect this stability to remain for both the short-term and long-term, particularly for banks and insurance companies. In the private equity (PE) space, we continue to see large losses hitting insurance towers. After several years of rate increases, current rates and program structures in PE are relatively stable. However, looking ahead, loss trends, including substantial defense costs, should lead to rate and structural changes in PE programs.
Overall, while the D&O market is stable in many areas, the short-term and long-term outlook is contingent on evolving risks, macroeconomic factors, and supply-and-demand fundamentals.
Willis: What do you foresee as possible effects of the US Supreme Court’s decisions in Jarkesy and Loper on D&O risk and underwriting?
AH/JM: The most impactful effects of these US Supreme Court rulings are still unknown. The Jarkesy and Loper decisions could introduce uncertainty for regulatory enforcement, with potential for implications in the D&O insurance space. These changes could reshape how regulatory agencies enforce their rules and how companies respond to potential actions. Insurers should closely monitor the regulatory trends to keep a watchful eye on how this landscape evolves because there is a potential risk for some increased litigation.
In Jarkesy, the court held that the SEC must provide for access to a federal jury trial whenever the agency imposes civil monetary penalties. The court’s holding affects the SEC’s usage of Administrative Law Judges (ALJ) and could reshape how regulatory actions unfold. Federal court litigation brings different evidentiary standards, higher defense costs, and potentially longer proceedings. These stricter standards and the potential additional burden on resources may lead to the SEC prioritizing stronger, but perhaps fewer, cases.
The Loper decision overruled the Chevron deference, which is the doctrine of deferring to an administrative agency’s interpretation of allegedly ambiguous statutory language. The Loper decision opens the door to judicial statutory interpretation. Implications of this decision call into question the degree to which courts will make decisions on matters that once fell to the agencies. It’s important to acknowledge that Congress can still explicitly delegate authority to agencies and that this decision only applies to congressional statutes that are silent or ambiguous with respect to the specific issues at hand. This may reduce the impact of Loper on agency interpretations and could lead to more litigation seeking to invalidate future agency rules and interpretations of regulations. There’s potential for a less predictable regulatory environment on the horizon.
Willis: In our most recent WTW Global Directors’ and Officers’ Surveys, cyber-related risks continue to be serious concerns. Are you as concerned about cyber as a D&O risk? Do you think that not having enough broad cyber insurance coverage can increase D&O risks?
AH/JM: Overall, there is certainly concern about cyber risks in the D&O space. Driven by individuals, organized crime groups and state-sponsored entities, these threats are continuing to grow in frequency and complexity, and they represent a significant challenge for many companies. The expectation from both government bodies (such as the SEC) and shareholders is that companies invest substantial resources to protect their data and business from cyber threats. This expectation adds an extra layer of responsibility for directors and officers.
The SEC's adoption of final cybersecurity rules in 2023 highlights the added responsibilities of Officers and Directors. The rules mandate disclosure of any material cyber security incident, a description of processes for assessing and managing cyber security threats and a description of the Board of Directors oversight of cyber risks. These regulations place pressure on companies to be transparent, which may increase the potential for liability if cyber incidents are mishandled or not properly addressed.
Cyber breaches can cause significant harm to companies, resulting in SEC enforcement actions, investigations, securities class actions and derivative lawsuits. We’ve already seen examples where the SEC has charged companies for downplaying cyber incidents, imposing significant fines as a result. Additionally, there have been 20 cyber-related SCAs filed since 2020, although the frequency of these cases has started to decline. Going forward, questions remain about the trajectory of enforcement: With the new administration, will the SEC remain active with regards to cyber? Will cyber incidents result in significant stock drops, potentially leading to both Securities Class Actions and/or derivative actions?
Looking forward, significant resources on cyber security along with disclosures will continue to be a major part of the governance of both private and public companies. Ensuring companies are covered with adequate cyber liability insurance should remain top-of-mind for risk management departments.
Willis: What do you envision the securities litigation environment looking like in the next 12 to 18 months?
AH/JM: Looking to the future, the securities litigation environment is likely to remain active but it’s difficult to predict with certainty. There is a potential for an uptick in SCAs, especially after the hard market years when we saw a period of lower filings. We have already seen an increase in the number of SCAs in both 2023 and 2024. SCAs do remain one of the most volatile areas for insurance carriers which have the potential to impact a carrier’s profitability either positively or negatively.
Two often overlooked factors that we believe drive SCAs are market volatility and the bandwidth of the plaintiff’s bar. We have been in a bull market for quite some time, so it’s likely that the market is primed to exhibit some course correction. This market volatility could potentially lead to stock drops and subsequent lawsuits. Moreover, historically the revelation of some of the larger fraudulent schemes were precipitated by market downturns. If the broader economic conditions shift towards a downturn, we may need to brace for a handful of expensive claims resulting from schemes that are no longer sustainable in a falling market.
The plaintiff’s bar arguably has more bandwidth than they did a year ago, having worked through a backlog of cases from the previous market cycle. A more active market with greater swings provides opportunities for filings, and we could see an increase in the volume of cases and potentially higher-quality cases.
Industry-specific trends are also worth keeping a close eye upon. For example, we’ve seen that while the amount of overall SCAs are increasing, filings targeting Fortune 500 companies have declined 14% YOY. And, we have also seen an increase of “event driven” SCAs as well as significant derivative settlements.
Willis: In light of the current exposures environment, what strategic underwriting actions are you taking to improve underwriting results?
AH/JM: To help our clients find continued success in an ever-changing market, we focus on emerging trends, strategic analytics and thoughtful portfolio management. We place a strong emphasis on keeping our ears to the ground and examining those trends as they relate to our accounts to gain a more wholistic understanding of each unique opportunity. As these trends develop, we assess how they impact individual accounts, collaborating closely with risk managers and brokers to understand and address their needs. As a specialty carrier, we also emphasize the development of our technical underwriting expertise across both mainstream and underserved lines of business. We do this by equipping our underwriting team with predictive analytics models, which play a crucial role in enhancing their risk assessment capabilities. These models serve as another “voice in the room,” alongside the underwriter’s own technical expertise. Together, they enhance the decision-making process, leading to both stability and predictability in the capacity we offer to our customers.
In addition, we believe success lies in carefully segmenting our portfolio to identify both growth opportunities and areas that require attention. We collaborate closely with our Actuarial and Strategic Analytics teams to analyze our book of business and identify key “hot spots” and opportunities for growth. This approach ensures that we have a comprehensive understanding of the evolving landscape and can tailor our business strategy to any emerging trends or challenges. Specifically, we can use the analysis to adequately price risks on an account level, ensuring that our clients are given the best price for their own risk and not those of their peers.
Our diversified approach and focus on limits management demonstrates our commitment to serving the marketplace and delivering value to our business partners.
WTW hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
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