Smaller and mid-sized private companies in the United States are entering 2026 facing a tougher risk landscape, as rising insolvencies, tariff pressures and geopolitical instability push insurers to sharpen their focus on governance and financial resilience.
While capacity in the directors and officers (D&O) insurance market remains ample, underwriting standards are tightening, particularly for firms showing signs of financial stress.
In an interview with Insurance Business, Allianz Commercial’s private company leader Peter Carozza (pictured) said that claim frequency in the private-company D&O space is returning to pre-pandemic levels, driven largely by fiduciary-duty and related governance claims. Carozza noted that underwriters are placing heavier emphasis on corporate governance, financial health, and documentation practices as insolvency concerns grow.
According to research from Allianz Trade, global business insolvencies are forecast to rise by 6% in 2025 and a further 5% in 2026, before a modest decline in 2027. That would put insolvencies some 24% above pre-pandemic averages.
The same report highlights that the delayed impact of recent tariffs and trade disruptions may push a portion of insolvency cases into 2026, creating “domino effects” as payment defaults cascade across supply chains.
In the US, the picture is stark. According to data compiled by S&P Global Market Intelligence, 2025 is on track to become the worst year for US corporate bankruptcies in 15 years. As of October, there had already been 655 large corporate filings, nearly matching the 2024 total.
The trend has led to growing concern that private companies, which are often smaller and less globally diversified than public peers, have fewer levers to pull when economic conditions deteriorate.
“Smaller private companies may not necessarily have the same applications or resources at hand,” said Carozza. “That makes it even more important for them to find ways to navigate these circumstances and make sure they keep their business sustainable.”
While insolvency does not automatically lead to litigation, it significantly raises exposure for directors and officers if stakeholders allege mismanagement or insufficient oversight.
“Insolvencies do not always result in litigation,” Carozza added. “But if they do, the more information, prudence and diligence you’ve shown certainly helps in the defense of a claim.”
He added that insurers are seeing more Chapter 11-style restructurings, including pre-packaged arrangements with creditors, where businesses may still be viable but strained by higher interest costs, inflation and supply chain disruptions exacerbated by tariffs.
Despite the rise in distressed firms, insurers have not broadly retreated from the private company D&O market. Instead, they are applying more rigorous scrutiny.
“There’s still a lot of capacity in the market. What we’re seeing is more underwriting discipline around companies’ financials and how they’re servicing their debt,” Carozza said.
He noted that underwriters are prioritizing detailed financial data, including debt maturities, covenant compliance and relationships with lenders. They are also probing capital commitments from shareholders and the viability of business models under current economic conditions.
“They want to understand when the company’s debt is coming due and whether there have been discussions with lenders,” Carozza said, “so that arrangements can be made in the event covenants are tripped.”
At the same time, governance standards are getting a closer look. Insurers are paying increased attention to board competency, documentation practices and meeting minutes, especially as fiduciary duties expand when companies approach insolvency.
Geopolitical tensions have added another layer of complexity. Sanctions regimes and ongoing conflicts, such as the war in Ukraine, have heightened expectations that boards understand and actively manage external risks affecting their operations.
“Underwriters really look to see what governance companies have in place and what protocols they are following to navigate this very dynamic environment,” Carozza said.
While artificial intelligence has emerged as a governance flashpoint for public companies, AI-related D&O exposures are currently less acute for private firms, which face fewer disclosure obligations. Still, insurers are monitoring developments as technology adoption accelerates across all sectors.
With economic, geopolitical and regulatory pressures converging – and few signs of relief in the near term – trying to forecast the next shock is less effective than preparing for it. Carozza emphasized that proactive risk management is now table stakes for private companies, especially those facing tighter margins or higher leverage.
That preparation increasingly starts with governance. Brokers can play a critical role by encouraging clients to strengthen board oversight, refresh expertise and stress-test governance frameworks against downside scenarios. This may mean adding directors with restructuring, finance, supply-chain or geopolitical experience, or engaging external advisers to support boards through periods of heightened uncertainty.
“Companies need to make sure they are navigating complexities and doing their diligence so they can continue over the long term,” Carozza said.
Financial preparedness will be a major point of engagement. Brokers must increasingly act as facilitators between insureds and underwriters by helping clients anticipate the questions insurers will ask, such as how debt is structured, when maturities fall, whether covenants are tight, what liquidity buffers exist, and what capital support shareholders are prepared to provide if conditions worsen.
For private firms, this preparation will not only help them secure D&O coverage on favorable terms but also weather an increasingly unforgiving business environment.
