The Hidden Costs of a Bad Benefits Package: Why Retention Starts with the Right Offerings

Picture this: a mid-sized company has operated successfully for eleven years. A combination of rising input costs, a softening market for its services, and tighter credit conditions has created cash flow stress over the past eighteen months. The business continues operations, takes on additional working capital debt, and makes several asset dispositions to manage liquidity. Twelve months later, the business files for restructuring. The lender, facing a significant shortfall, files a breach of fiduciary duty claim against the company’s management team personally.

The company has general liability insurance. It has commercial property coverage. It has an employment practices liability policy. It does not have directors and officers insurance. The claim against management, for decisions made during a financially stressed period, has no insurance response. The individuals who served as directors and officers of that company are personally exposed.

This scenario is not hypothetical. It is the most common private company D&O claim type in the current market, and it is playing out with increasing frequency as rising operating costs and tighter credit conditions have stressed mid-market businesses across industries. D&O insurance for private companies has stabilized in pricing after years of market correction. At the same time, the three exposure forces driving private company D&O claims are more relevant in 2026 than at any point in the past decade.

The Three Private Company D&O Exposure Forces in 2026

Business insolvency risk is the primary driver of private company D&O claims in the current market. Lenders and creditors facing shortfalls on distressed loans may pursue directors and officers for breach of fiduciary duty, fraudulent conveyance, or mismanagement claims, particularly when the financial distress involved continued operations, asset dispositions, or additional debt that benefited equity holders at the expense of creditors. These claims do not require proof that management acted dishonestly. A creditor may only need to allege that management decisions made during a period of financial stress were not in the best interests of the company as a whole. In an insolvency context, that standard can be applied broadly.

AI governance exposure is an emerging but rapidly accelerating source of D&O liability. Directors and officers who approve the use of AI tools for hiring, performance management, compensation, or customer-facing decisions without establishing adequate governance oversight may be creating personal exposure they do not recognize. The EEOC has made clear that “the algorithm did it” is not a valid defense. Employers can remain liable for disparate outcomes produced by AI tools they have adopted, including tools purchased from third-party vendors. As plaintiffs’ attorneys develop new theories for algorithmic bias claims and regulators increase scrutiny of AI governance, directors who cannot document adequate oversight of AI-driven decisions may face personal liability that their general liability and employment practices policies do not cover.

Employment practices claims against individual officers remain a frequent private company D&O trigger. Wrongful termination, discrimination, and retaliation claims that name individual officers and directors, rather than only the company, can fall within the D&O coverage grant. Many businesses purchase employment practices liability insurance without D&O coverage, creating a gap precisely where the two coverages may overlap. An EPL policy generally addresses the company’s liability for employment claims, while a D&O policy can address the personal liability of individuals named in those claims. When both the company and its officers are named as defendants, both coverages may be needed.

Why the Current Market Is a Favorable Entry Point

D&O insurance pricing peaked in 2021 and 2022 following a period of significant claims activity driven by securities class actions and SPACs. Since then, the market has corrected steadily. By early 2026, D&O has stabilized at flat renewals for most private company primary coverage, with some segments seeing modest reductions. For private companies that have never purchased D&O coverage and are entering the market for the first time, the current environment represents materially better pricing than was available two or three years ago.

The favorable entry point has a practical time limit. The insolvency risk exposure currently driving private company D&O claims reflects current economic conditions, including tighter credit, higher operating costs, and softening demand in several industries. If those conditions improve, the urgency of insolvency-related exposure may decrease. If they persist or worsen, D&O claims could continue to increase, and underwriters may adjust pricing accordingly. The opportunity to enter the D&O market while pricing remains stabilized is now, rather than after another wave of claims activity prompts the market to reprice.

What Private Company D&O Coverage Actually Provides

Private company D&O insurance is structured around three coverage components that address different aspects of the same underlying risk. Side A coverage protects directors and officers personally when the company cannot indemnify them, most commonly when the company is insolvent, when the claim involves a derivative suit, or when indemnification is legally prohibited. Side B coverage reimburses the company for amounts it pays to indemnify its directors and officers. Side C, also known as entity coverage, protects the company itself against certain claims.

For private companies, Side A is often the most practically important component. When the business is solvent and able to indemnify its officers, Side B generally responds. When the business is in financial distress, which is precisely the scenario that can generate significant private company D&O claims, indemnification may be unavailable or prohibited. In those circumstances, Side A may be the only coverage protecting the individuals personally exposed by the claim.

The commercial insurance team at Tooher-Ferraris helps mid-sized businesses evaluate D&O exposure, structure coverage that reflects their specific governance and ownership characteristics, and integrate D&O into a complete management liability program alongside employment practices liability and fiduciary liability coverage. Learn more at https://toofer.com/specialty-programs/ and https://toofer.com/commercial-insurance/.

Hinshaw and Culbertson’s 2026 D&O Liability and Coverage analysis provides detailed context on current private company D&O claim trends at hinshawlaw.com. The AM Best D&O market outlook is available at ambest.com.

Frequently Asked Questions

Do private companies really need D&O insurance?

Yes. Private company D&O exposure arises from the same types of governance and management decisions that generate public company D&O claims, but through different claim types: lender and creditor claims in distressed situations, employment practices claims naming individual officers, minority shareholder suits in closely held companies, vendor disputes alleging misrepresentation, and AI governance claims. None of these require the company to be publicly traded, and none are covered by general liability or employment practices liability policies alone.

When is the right time to buy D&O insurance?

D&O is a claims-made policy, meaning the policy in force when a claim is reported is the policy that responds. The right time to purchase D&O is before a claim arises, which means before a financial distress situation, before an employment dispute reaches the individual officer level, and before an AI governance incident generates regulatory scrutiny. Companies that purchase D&O after a distress event begins may find prior acts limitations or exclusions that significantly restrict coverage for the events that prompted the purchase.

How is D&O insurance different from general liability?

General liability insurance covers claims involving bodily injury and property damage arising from business operations. D&O insurance covers claims arising from the management decisions and governance actions of directors and officers, including breach of fiduciary duty, misrepresentation, mismanagement, and failure of oversight. These are fundamentally different categories of liability. A business that carries only general liability insurance has no insurance response to a D&O claim, regardless of the size of its GL limits.

Ready to evaluate your directors and officers liability exposure? The team at Tooher-Ferraris has been helping businesses build complete management liability programs since 1932. Contact us today to schedule a no-obligation consultation — https://toofer.com/contact-us/

The 2026 commercial insurance market is the most bifurcated in recent memory, and most business owners are reading it wrong. Property rates are declining as carrier capacity has returned to the market following several years of catastrophe-driven increases. Cyber pricing is softening as competition among carriers intensifies and loss experience has remained more favorable than underwriters anticipated. Directors and officers liability has stabilized after years of market volatility.

At the same time, general liability, commercial auto, and umbrella and excess coverage are telling a very different story. Loss trends of 12 to 15% are persisting in general liability, driven by social inflation and nuclear verdict exposure. Commercial auto has posted underwriting losses for fourteen consecutive years and continues to harden for fleet accounts. Umbrella and excess capacity has quietly shrunk as reinsurers have restricted their exposure to the casualty lines most affected by social inflation. A business that looks at its total renewal number and concludes the market is softening may be missing significant increases in the casualty lines that matter most.

Where Rates Are Declining and Why

Commercial property has seen meaningful rate decreases in 2026 as carrier capacity returned to the market following the 2023 and 2024 catastrophe seasons. Reinsurance pricing stabilized, allowing primary carriers to compete more aggressively for well-managed commercial property accounts. Businesses with demonstrable property risk management, including updated roofing, upgraded electrical systems, and documented building maintenance programs, are seeing some of the most favorable property renewals they have had in four years.

Cyber insurance has shifted dramatically from the rate environment of 2021 and 2022. Competition among cyber carriers has intensified, and for businesses that can demonstrate strong security controls, pricing has declined meaningfully from peak levels. According to recent market analysis, businesses that implement the five core security controls now required as baseline underwriting standards have seen premiums stabilize or fall 50 to 60% compared to businesses without those controls. The catch: businesses that cannot demonstrate those controls are facing flat denials or premium increases that can exceed 300%.

Directors and officers liability has hit a floor after years of market correction. Primary coverage for private companies is seeing flat renewals in most segments, and for private company D&O accounts with clean governance histories, pricing is no longer moving in the wrong direction.

Where Rates Are Still Rising and Why

General liability is under sustained upward pressure, and this is not a short-term phenomenon. Nuclear verdict exposure, driven by the same social inflation dynamics affecting commercial auto losses, is now influencing general liability pricing. Underwriters are accounting for the growing likelihood of large plaintiff verdicts on claims that might have settled for lower amounts five years ago. Accounts with retail, hospitality, or manufacturing operations, where third-party bodily injury exposure is highest, are seeing the most significant GL increases.

Commercial auto remains the most structurally challenged line in property and casualty insurance. The line has generated underwriting losses in 14 consecutive years, and the forces driving those losses, including claim severity, nuclear verdicts, and vehicle repair costs, are not easing. Fleet accounts that have not invested in telematics, documented driver monitoring programs, and safety training are being penalized at renewal. Those that have built this documentation are receiving more favorable treatment, although favorable is a relative term in a market with sustained double-digit severity trends.

Umbrella and excess capacity has shrunk quietly. Reinsurers have restricted their exposure to the casualty lines most affected by social inflation, and that restriction has flowed through to the primary market. Businesses operating with umbrella limits and attachment points that were set three or more years ago may be carrying programs that no longer reflect current verdict trends. A $5 million umbrella that was adequate for a company’s liability profile in 2021 may be inadequate for the same company’s liability profile today, without any change in the underlying operations.

How to Read Your Renewal in a Bifurcated Market

The most common mistake in a mixed market is evaluating the total premium change and losing sight of which lines are moving and why. A business that sees its total commercial program renew flat may be experiencing a significant property decrease that offsets a significant GL and umbrella increase. The overall result may look acceptable, while the underlying changes represent a meaningful shift in where its protection is concentrated.

Three questions are worth asking before accepting any renewal in the current market. First, which lines are increasing, and what is the stated reason for each increase? A GL increase attributed to general market trends is a different conversation from a GL increase attributed to a specific loss. Second, are the limits and structures on the lines that are increasing still adequate given current verdict trends? Third, have you been presented with alternatives, such as plan design changes, deductible adjustments, or coverage restructuring, or only a rate increase?

The commercial insurance team at Tooher-Ferraris reviews complete commercial programs across all lines rather than treating renewal as a single-number negotiation. Learn more at https://toofer.com/commercial-insurance/ and https://toofer.com/specialty-programs/.

The Insurance Information Institute publishes current market data and line-by-line rate trend information at iii.org. RIMS, the risk management society, provides detailed commercial insurance market analysis at rims.org.

Frequently Asked Questions

Why are property rates declining in 2026 while liability rates are still rising?

Property and casualty lines are driven by different underlying loss dynamics. Commercial property pricing reflects catastrophe loss experience and reinsurance capacity, both of which have improved. Liability lines, particularly general liability and commercial auto, are driven by claim severity trends, social inflation, and nuclear verdict exposure, none of which have improved materially. The result is a market moving in opposite directions simultaneously, which is the defining characteristic of the 2026 renewal environment.

How does social inflation affect commercial liability premiums?

Social inflation refers to the rising cost of insurance claims driven by increased litigation, broader legal interpretations of liability, plaintiff-friendly jury decisions, and third-party litigation funding. It affects general liability, commercial auto, and umbrella pricing because insurers must price in the expectation that claims that historically settled at lower amounts will now produce larger verdicts or settlements. The effect compounds over time as prior-year reserves prove inadequate and carriers adjust their prospective pricing.

What should I ask my broker about my commercial program renewal this year?

Ask for a line-by-line breakdown of what is increasing, what is decreasing, and the stated reason for each movement. Ask whether your limits and structures on liability lines still reflect current verdict trends in your industry. Ask what alternatives were considered before the renewal as presented. A broker who can answer all three questions with specifics, not generalities, is providing the level of analysis the current market requires.

Ready to review your complete commercial insurance program in the context of the current market? The team at Tooher-Ferraris has been helping businesses navigate commercial renewal since 1932. Contact us today to schedule a no-obligation consultation — https://toofer.com/contact-us/