As the new Trump administration continues to enact its agenda, many insurance industry experts anticipate that shifting regulatory priorities could impact directors’ and officers’ liability and the D&O insurance market. However, since the second half of 2022, when record high premiums confronted directors and officers across all industry sectors, D&O liability insurance capacity, coverage and pricing have rebounded. These favorable market conditions are expected to persist.
Any time a new federal administration takes a sharp turn left or right, there are both positive and negative liability implications for directors and officers, said Dan Bailey, a D&O insurer defense attorney and partner at law firm Bailey and Cavalieri. “Volatility drives D&O claims activity,” he said. “Unpredictability creates uncertainty over the benefits and drawbacks.”
Nevertheless, he believes that any actions taken by the Trump administration will not immediately affect current D&O market conditions. “It takes some time for the market for D&O insurance to turn in terms of pricing, coverage terms and conditions,” Bailey said.
According to Priya Cherian Huskins, senior vice president and partner at commercial insurance brokerage Woodruff Sawyer, D&O rates are “always a question of capital supply and demand, married to carriers needing to pay for past and future losses.” Reflecting on the market in 2022, she said, “Unprecedented demand for the insurance outpaced available supply, causing D&O premiums to hit record highs.”
She attributed the increase in D&O market demand that began in 2021 to the formation of a record number of special purpose acquisition company (SPAC) and IPO formations that year. According to Woodruff Sawyer data, IPO filings in the United States averaged 234 per year between 2017 and 2019. In 2020, that figure more than doubled to 460 filings, and the following year saw a record 1,013 IPO filings.
“In the second half of 2021, 71% of public companies renewing the same year-over-year D&O program experienced a price increase,” Huskins said. “The hard market rates were almost five times the rates we saw in 2018, resulting in a flood of new capacity and carriers to provide D&O insurance.”
As the number of IPOs, SPACs and de-SPAC transactions decreased in the second half of 2022, available supply returned to the market and D&O rates subsequently fell. Almost 90% of public companies experienced a D&O price decrease in 2022, a soft market trend that continued into 2023 and 2024 with further premium decreases or the same pricing, according to Woodruff Sawyer data. “As quickly as the market hardened, rates came down even faster,” Huskins said.
These market conditions remain in effect. “We are still in a very competitive market, with plenty of capacity and much lower securities class action claims than we saw between 2018 and 2021,” said Jennifer Sharkey, national managing director in the executive and financial risks practice at insurance broker Gallagher.
A Shifting Landscape for D&O Liability
It is unclear whether D&O claims activity will increase or decrease in the coming years under the Trump administration. While several regulations and enforcement activities are likely to be rolled back, new regulations and enforcement activities may replace them. For example, the focus of the Securities and Exchange Commission (SEC) may shift under new chair nominee Paul Atkins, who is reportedly “market friendly” and skeptical of overregulation. “The SEC is expected to become less aggressive from an enforcement standpoint,” Bailey said. “We do not expect to see the level of regulatory oversight we saw—not that it will go away or the SEC will ignore wrongdoing.”
According to Scott Seaman, co-chair of the global insurance services practice group at law firm Hinshaw & Culbertson, there is a “strong possibility” that the SEC’s rules requiring the disclosure of climate-related information in public company financial filings “will be wiped off the record,” thereby removing directors’ and officers’ liability for inaccuracies or misrepresentations in their climate emissions disclosures.
Other potential changes involve the president’s appointment of more conservative federal judges. In President Trump’s first term, he appointed 234 federal judges, including 54 district court judges. Rulings by conservative judges in lower courts appointed during Trump’s first term largely benefited directors and officers, said Ryan Stubits, senior vice president and director of client services at insurance broker Lockton. He speculated this trend might continue over the next four years.
In addition, the three conservative Supreme Court justices President Trump appointed in his first term have further altered the posture of the nation’s highest court in ways that have mostly favored directors and officers. For example, last year, the Supreme Court invalidated an SEC regulation requiring Nasdaq-listed companies to disclose the diversity of their board members and the end of the Chevron Deference, a four-decade-old legal doctrine requiring federal courts to defer to federal agencies’ interpretations of ambiguous statutes. Going forward, federal judges will now determine the meaning of these laws. Another 2024 Supreme Court decision in Loper Bright Enterprises v. Raimondo diminished the power of administrative agencies, which previously could impose civil fines in federal court. These and other recent decisions will likely serve to limit directors’ and officers’ liability going forward.
Overall, as the federal government elevates economic concerns over environmental and social considerations, D&O liability insurance claim frequency and severity may be reduced. “There is little question that most corporate executives and board directors feel the new administration will have a more sensible regulatory approach and a more favorable environment for business in general,” said Mike White, who chairs the nominating and governance committee at Bank of America. “That being said, there are still lots of risks out there.”
New D&O Risks
Despite the favorable regulatory environment, several heightened liability concerns remain for directors and officers under the Trump administration. The president’s widespread tariffs on critical imports from other countries alters the D&O liability impact in different industry sectors. “Tariffs change the D&O emphasis, with oil and gas companies possibly benefitting and clean energy companies possibly not,” Bailey said.
White noted the geopolitical impact of higher tariffs imposed on goods from China and other countries, which could boomerang into a major trade war. “That could be very disruptive and bleed into D&O insurance rates a bit,” he said.
Although possible expenditure reductions at the SEC recommended by the Department of Government Efficiency (DOGE) may reduce D&O claim activity, potential expense cuts at the Federal Trade Commission may have the opposite effect. A more tolerant FTC that less often prohibits M&A transactions based on antitrust concerns could result in greater D&O claims activity. “Shareholders frequently challenge board conduct with respect to a merger transaction,” Bailey said. “More transactions usually mean more D&O claims.”
Some believe there may also be rising D&O liability linked to the president’s more permissive approach to cryptocurrencies. “For corporations outside the crypto industry, I do not foresee much of a D&O impact,” Bailey said. “But for directors and officers in the crypto industry, which appears to be growing fast and involves a ton of money, the inherent volatility we have seen in the past may return, increasing the prospect of D&O claim activity.”
Recent federal government actions involving cybersecurity are another looming D&O concern. The Department of Homeland Security’s recent dismissal of the federal Cyber Safety Review Board, whose purpose was to examine and assess cyber incidents and recommend cybersecurity improvements to the private and public sectors, exemplifies pared-back cybersecurity enforcement. Since directors and officers can be held liable for cybersecurity breaches if they fail to ensure adequate cybersecurity measures are in place, the more relaxed regulatory posture is concerning. “There is a lot of cyber risk out there,” said White. “No board member can sleep soundly thinking everything is fine.”
Huskins, however, is not convinced that regulatory enforcement activities by federal agencies will significantly contract under the Trump administration. “I think the corporate celebration that the new administration will be less interested in enforcement actions is premature,” she said. “As much as this is an administration likely to be more constructive from a business standpoint, there are still some fundamental rules when it comes to securities and other laws that will continue to be enforced. As we learned from the previous Trump administration, if the federal government is perceived not to be doing enough around enforcement, states and local governments will pick up the slack.”
Ultimately, the new administration’s policies will likely create both opportunities and challenges for directors and officers. “While I would say there are fewer risks, there are also different risks,” White said. “Knowing President Trump’s style [of running the government], we will be surprised along the way by some things that will be favorable to directors and officers and others that will not be.”
As for the insurance market, sharp pullbacks in D&O capacity are not expected, suggesting that coverage and pricing stability will continue through the upcoming D&O policy renewal season.
“We are still in a very competitive market, with plenty of capacity and much lower securities class-action claims than we saw between 2018 and 2021,” Sharkey said. “We expect to see more excess insurers enter the D&O market [although] the majority of risk managers are sticking with their incumbent insurers, assuming they are providing the market rate or offering further reductions.”