Global business insolvencies are expected to rise by 11% this year and countries accounting for more than half of global GDP will be hit by double-digit insolvency increases, says risk and insurance company Allianz Trade.

Insolvencies are an emerging risk for directors and officers in 2025, Allianz highlights in its 'Key risk trends for Directors and Officers in 2025' report.

Directors and officers operated in a highly complex environment throughout this year and further volatility can be expected during 2025. Executives are confronted with risks arising from business insolvencies, geopolitical upheaval, climate change, digital transformation, economic uncertainty, shifts in public opinion and an evolving legal landscape.

“The directors and officers insurance market has remained competitive for buyers over the past year, but loss potential is still high,” says Allianz Commercial chief underwriting officer Vanessa Maxwell.

“The global rise in business insolvencies is a particular focus of concern, with companies and leaders exposed to potential claims from lenders seeking to recover funds, or from shareholders who allege breach of fiduciary duty,” she adds.

Major insolvencies already increased by 26% year-on-year for the first three quarters of 2024, or 344 cases.

Western Europe leads the global count with 195 cases, which is a reflection of the region’s current economic instability, followed by Asia-Pacific with 67 cases, and North America with 66 cases.

Rising bankruptcies typically lead to an increase in directors' and officers' claims and this trend is a reminder to business leaders of the need to respond and adapt to the challenging environment.

“Many companies have faced higher interest expenses, inflationary pressures, and macro- and microeconomic headwinds that have impacted their business and resulted in a struggle to service their debt load,” says Allianz Commercial global management liability commercial head Dan Holloway.

“Some sectors are particularly exposed, including real estate, construction, hospitality, tourism and businesses in ‘consumer discretionary’, or non-essential purchases, sectors.”

Meanwhile, “AI washing”, or exaggerated claims about capabilities, is an emerging risk trend that is leading to securities class action lawsuits.

While the potential of AI is huge, companies must adapt quickly to potential exposures around disclosure, regulation, shareholder scrutiny and litigation, Allianz advises.

AI-related litigation is increasing, and exaggerated claims about firms’ technological capabilities could lead to securities class action lawsuits and enforcement actions.

Class action lawsuits have already been filed in the US, but the risk extends beyond North America, as any company that has its stock listed on a US exchange is subject to US securities law, it notes.

Further, the global litigation funding industry is projected to grow by almost 10% a year up to 2028, thereby widening access to justice, but also potentially driving up the number of class actions and settlement costs and damages.

This is also not only confined to the US, and third-party litigation funding is also established in Australia, Germany, the Netherlands and the UK.

“The litigation landscape and enforcement are increasingly stringent, and we are seeing regulatory bodies across the globe step up scrutiny of corporate conduct, making directors and officers more vulnerable to investigations, penalties and lawsuits,” says Maxwell.