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Directors and officers (D&O) insurance—which protects business leaders against personal losses if they are sued over decisions made on the company’s behalf—is a key element of risk management for firms of all sizes. Small and medium-sized enterprises (SMEs) and not-for-profit organizations in particular face increasing pressure to secure these protections in the face of regulatory complexities, market volatility and increased exposure to lawsuits. The consequence of the 2024 election is more likely to shape the executive and director insurance market in several key ways, most notably through changes in the regulatory framework, litigation risk and corporate governance expectations.
1. Regulatory pressure and compliance
D&O insurance premiums are greatly influenced by the regulatory environment in which business leaders operate. Regulatory enforcement and recent compliance requirements may significantly increase directors’ and officers’ exposure to lawsuits and regulatory actions, impacting the cost and availability of director and officer insurance.
Republican influence: If Republicans take control, we could see some regulations being rolled back, especially in sectors like finance, health care and the environment. Limited enforcement could reduce the risk of litigation for directors and officers, which could stabilize or even lower premium costs for directors and officers in small and medium-sized businesses. However, less regulation could also result in greater public scrutiny and private litigation, which could offset some of those advantages, especially in industries where consumers or shareholders are more more likely to take legal motion in response to perceived misconduct. This could potentially have a greater impact on nonprofits than most businesses.
Democratic influence: A Democratic victory could result in more robust regulatory enforcement, particularly in areas akin to environmental compliance, data privacy and corporate governance. This increased regulatory pressure may increase risks for directors and officers, making directors and officers insurance costs dearer and tougher to secure. Small and medium-sized firms, which frequently have less robust regulatory compliance programs than larger corporations, may see significant increases in their directors’ and officers’ premium costs resulting from the increased risk of regulatory actions and lawsuits.
2. Litigation Risk and Corporate Liability
D&O insurance protects business leaders against lawsuits from shareholders, employees, competitors and regulators. The legal landscape shaping these risks can change dramatically depending on political control, affecting the frequency and severity of claims brought against directors and officers.
Republican influence: A more business-friendly environment under Republican leadership could reduce the overall risk of litigation for firms, potentially easing the burden on insurers of directors and officers. There could also be fewer regulations and less aggressive enforcement of corporate liability laws, which can result in fewer claims. This could translate into lower premiums for small and medium-sized businesses because insurers are less at risk of huge payouts.
Democratic influence: A Democratic-led administration could result in increased accountability measures, akin to more aggressive oversight of environmental, social and governance (ESG) issues and expanded legal protections for employees and shareholders. This policy may result in an increased incidence of lawsuits, particularly regarding problems with corporate governance, labor practices and climate-related risks. As a result, director and officer insurers may increase premiums or tighten underwriting standards, particularly for small and medium-sized firms that won’t have the same level of risk management resources as larger firms.
3. ESG (Environmental, Social and Governance) Considerations.
The push for tougher ESG standards has already begun to affect the executive and director insurance market, with insurers increasingly focusing on how firms manage risks related to climate change, diversity and corporate ethics. The 2024 elections could speed up or slow this trend, impacting how D&O policies are valued and underwritten.
Republican Politics: A Republican administration may downplay the importance of ESG regulations, reducing pressure on firms to satisfy stringent ESG criteria. This could result in fewer claims related to ESG failures, keeping the cost of insurance premiums for directors and officers lower for firms that do not invest heavily in ESG compliance. However, directors and officers should still face reputational risk, which could result in private litigation even in the absence of enforcement.
Democratic politics: A Democratic government is more likely to intensify its focus on ESG issues, increasing expectations placed on directors and officers to make sure their firms comply with environmental standards, social justice initiatives and governance reforms. This increased scrutiny could result in more claims against directors for failing to satisfy these expectations, further raising the cost of director and officer insurance premiums for firms perceived to be lagging behind in their ESG efforts. Small and medium-sized enterprises in particular may find it difficult to satisfy these requirements, further increasing their risk exposure. This can develop into an additional profit or consequence for nonprofits, depending on their market and mission.
4. Cybersecurity risks and D&O insurance
Cybersecurity is an area of increasing concern for directors and officials, especially in an increasingly digital world. The risk of lawsuits resulting from data breaches, ransomware attacks and failure to guard sensitive customer information is increasing, and D&O policies are evolving to deal with these threats.
Republican influence: A Republican administration may take a lighter regulatory approach when it involves cybersecurity, focusing more on voluntary guidelines quite than strict enforcement. While this could reduce direct compliance costs for firms, it could increase the risk of litigation if cyberattacks result in major breaches and subsequent shareholder lawsuits. Directors and officers should still be personally liable for failing to implement appropriate cybersecurity safeguards, which could impact the cost of premiums for directors and officers.
Democratic Influence: A Democratic administration could impose stricter data privacy and cybersecurity regulations. This could result in greater liability for directors and officers, especially if their firms have breached or failed to satisfy increased safety standards. Insurers can reply to this increased risk by increasing the cost of premiums for directors and officers, especially for firms in sectors that are often targeted by cyberattacks, akin to healthcare, finance and retail.
October is National Cybersecurity Month and a great time to audit your web security. During this annual event, government and cybersecurity leaders and the insurance community come together to boost awareness of the importance of cybersecurity. If you would like to audit your cybersecurity, here they are nine basic cybersecurity controls you’ll be able to implement to administer your exposure.
Navigating the D&O insurance landscape after the election
For small and medium-sized businesses and nonprofits, the D&O insurance market is more likely to experience significant changes depending on the consequence of the 2024 elections. The regulatory environment, litigation landscape and corporate governance expectations will play a key role in shaping the cost of executive and director insurance .
Regardless of the election consequence, small and medium-sized businesses should prepare for potential changes by reassessing their risk management strategies and ensuring their directors and executives are well protected from evolving threats. Working closely with insurance brokers to tailor D&O coverage to a company’s specific needs and vulnerabilities can be critical to maintaining effective coverage at a reasonable cost in the post-election environment.