Economic pressure, climate risks and AI: What’s driving D&O claims

This an extract from Marsh’s ‘Key market updates’ in our D&O insurance – the shifting sands of risk report. It was produced by the Institute of Directors with contributions from insurance broker and risk advisor Marsh, and legal firm Dentons. Read the full report here.

 

Economic uncertainty

Despite previous forecasts pointing to economic recovery in 2025, New Zealand now faces the prospect of a more prolonged recovery.

Corporate insolvencies are rising, with businesses dependent on discretionary consumer spending especially vulnerable, as are businesses with international exposure.

This economic strain increases the risk of D&O insurance claims as directors of financially distressed companies come under heightened scrutiny from creditors, shareholders and regulators.

Allegations related to trading while insolvent, unpaid wages or taxes, and breaches of fiduciary duties often coincide with the appointment of liquidators. With numerous global events impacting the New Zealand economy through supply chain disruption, rising unemployment (4.4%-5.1% in the 23 months to March 2025) and rising insolvencies (up nearly 50% year on year to July 2025), such allegations illustrate the growing legal and reputational risks directors face.

Companies best placed in this environment are ones that have retained positive insurer relationships and insurance buying patterns, ensuring they have no pitfalls in their D&O policies.

 

Climate change and ESG

Climate change issues can create significant risks and possible liability for directors and officers. The increasing frequency and intensity of natural disasters driven by climate change pose significant risks, including disruptions to operations, damage to infrastructure and financial losses.

Boards will increasingly need to demonstrate that these risks have been thoroughly assessed, appropriate response strategies are in place, and material environmental impacts are being clearly communicated to stakeholders.

Strong governance and proactive environmental initiatives are increasingly viewed as critical indicators of a company’s ability to navigate climate-related challenges. Directors should prioritise effective oversight, clear disclosure and robust risk management systems.

This view is further supported by legislative change. As noted above, about 200 financial institutions and large publicly listed companies are subject to the climate-related financial disclosure regime, under the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021. This disclosure framework mandates reporting on environmental, governance, strategy, risk management, and the need to specify metrics and targets.

When reviewing D&O insurance, directors should carefully assess how these areas of liability are addressed within their policies.

Top global concerns over the next decade 

• • Extreme weather events: Increasing frequency and severity of storms, floods and heatwaves
  • Biodiversity loss: Species extinction and habitat degradation
  • Critical changes to Earth systems: Significant changes in climate patterns and ecosystems
  • Natural resources shortages: Depletion of vital resources such as water, minerals and energy

Source: Marsh, Global Risks Report, 2025

 

Technology innovation and governance

Rapid technology advancement, particularly AI and generative AI, presents both significant opportunities and potential risks for New Zealand companies.

AI implementation presents new governance challenges for boards. For example, liability risks may emerge if AI systems produce discriminatory outcomes, breach privacy regulations, or if decisions made without sufficient human oversight lead to poor outcomes. Directors should establish specialised governance structures for AI management.

Beyond AI, operational technology security is also critical. As systems become more connected, the risk from cyberattacks increases, posing threats that go beyond data breaches to include physical harm, environmental damage, or disruption of critical infrastructure.

Technology innovation also presents opportunities. Advanced analytics, process automation, and real-time monitoring systems can strengthen governance while reducing operational costs. 

Insurers are taking note, increasingly recognising and rewarding technology-enabled risk management strategies in their underwriting decisions and pricing models.

Technology-related risks carry significant insurance implications. Directors should ensure their D&O policies adequately cover claims stemming from failures in technology governance. As these risks continue to evolve, clear and specific policy language addressing technology-related liabilities is becoming increasingly important.