Most business owners we meet have a Directors and Officers policy sitting somewhere in their insurance program. It gets renewed each year, the premium is paid, and nobody thinks about it again until something goes wrong. Heading into 2026, that quiet habit is starting to look expensive.
The reason has very little to do with price. For a lot of Australian companies, D&O premiums have actually come down over the past year. The problem is what sits underneath the policy. The personal exposure carried by company directors has widened on several fronts at once, and for many boards the cover they bought three renewals ago no longer matches the risk they are actually running.
Here is what decision makers at mid to large businesses need to know, in plain English.
What does Directors and Officers insurance actually cover?
Directors and Officers insurance, or D&O, protects the people who run a company when they are personally pursued for something they did, or failed to do, in their role. That includes alleged breaches of directors’ duties, misleading statements, regulator investigations, employment-related claims and actions that follow an insolvency.
The word that matters most is personal. Directors’ duties under the Corporations Act attach to the individual, not to the business. If a claim lands and there is no valid D&O cover behind it, the director’s own money is on the line. Their house, their savings and their super can all be exposed to defence costs and any settlement or judgment. D&O exists to stand in that gap so the individual is not funding their own defence out of pocket.
Policies are usually built in three parts, and it helps to know which is which:
- Side A looks after individual directors and officers when the company cannot indemnify them, for example because it has become insolvent or is legally barred from doing so. This is the personal safety net.
- Side B reimburses the company when it does step in and indemnify its directors.
- Side C covers the company’s own liability for certain securities claims, and matters most to listed businesses.
Do private and mid-market companies really need D&O cover?
Yes, and often more than the big listed names do. There is a stubborn myth that D&O is only for ASX-listed boards. In our experience it is frequently the private and family-owned businesses that carry the sharpest personal exposure, because ownership is concentrated, directors sign personal guarantees, and the same few people make and sign off on nearly every decision.
Picture a privately owned company turning over somewhere between ten and a couple of hundred million dollars. The directors are usually shareholders, guarantors and operators all at once. A regulator that comes knocking, a former executive with a grievance, a competitor alleging misleading conduct, or a liquidator chasing an insolvent trading claim all end up pointing at those same individuals. Without D&O, the defence costs, which tend to be the biggest and earliest expense, come straight off the company balance sheet or out of personal funds.
Why personal liability for directors is rising in 2026
No single change explains it. It is four separate pressures arriving at the same time. On their own each is manageable. Together they are the reason brokers are telling boards to stop treating D&O as a set and forget line.
The ATO is chasing directors personally, at record scale
The Australian Taxation Office has ramped up its use of Director Penalty Notices, which make current and former directors personally liable for a company’s unpaid PAYG, GST and superannuation. The scale of it is hard to ignore. The ATO issued roughly 84,000 Director Penalty Notices in the 2024-25 financial year, up from 26,702 the year before, hitting around 64,000 companies. Total collectable debt has climbed from $26.5 billion in 2019 to more than $50 billion by June 2025.
A Director Penalty Notice can turn a company tax shortfall into a personal bankruptcy in short order. D&O does not pay the tax bill itself, but the insolvency actions, disputes and defence costs that tend to travel alongside it are exactly the territory a well-structured program is built to respond to.
Mandatory climate reporting has created a brand new personal exposure
Australia’s mandatory climate-related financial reporting regime is now law and is phasing in by company size, with the largest entities reporting first and smaller reporting entities following over the next couple of years. Those caught by it must prepare an annual sustainability report that includes climate statements and a directors’ declaration, and ASIC has set out how it expects this to be done in Regulatory Guide 280.
The part boards need to sit up for is the liability. Directors face the same personal exposure for materially false or misleading sustainability disclosures as they do for false financial reporting. There is a temporary relief window that limits who can bring certain forward-looking and Scope 3 claims for a few years, but the direction of travel could not be clearer. Climate and ESG statements are now a director liability issue, and both ASIC and the ACCC have made greenwashing an enforcement priority, with the Mercer and Vanguard cases already setting the tone.
Shareholder claims are pointing more directly at directors
Traditional shareholder class actions have become harder for funders to turn into recoverable damages, and the expectation for 2026 is a shift toward shareholder derivative actions instead. These are claims brought on behalf of the company against its own directors and officers over governance and compliance failures. A recent move against former directors of SkyCity Entertainment, which stems from AUSTRAC’s anti-money-laundering enforcement and seeks more than $70 million, is the kind of action insurers are watching closely. Claims like this put named individuals squarely in the frame rather than the company alone.
AI and cyber oversight now sit on the board’s desk
Underwriters are increasingly pricing D&O on the strength of a board’s approach to AI and cyber governance. “AI washing”, where a business overstates what its AI actually does, is drawing regulatory attention, and directors are expected to show genuine oversight of how these tools are used. On cyber, a mandatory ransomware reporting regime now applies to businesses with turnover of $3 million or more, and the Australian Signals Directorate notified organisations of malicious cyber activity more than 1,700 times in 2024-25, an 83 per cent jump on the year before. When a serious incident hits, the questions quickly turn to what the board knew and what it did about it.
D&O or Management Liability: which one does your business need?
This is where mid-market boards most often get tripped up. For a lot of private companies, a standalone D&O policy is only part of the answer. Management Liability insurance is a broader package designed for private companies, and it usually bundles D&O together with cover such as employment practices liability, statutory liability, crime and the company’s own management exposures.
A rough rule of thumb helps here. A listed business, or one gearing up to raise capital, generally needs a dedicated D&O program with Side C securities cover. A privately owned mid-market company is often better served by a Management Liability policy with a strong D&O section inside it. Get the structure wrong and you either pay for cover you can never use, or you leave a gap on employment and regulatory claims that only shows up at the worst possible moment. It is worth talking it through with a broker who works with both.
So what is happening to D&O premiums in 2026?
Here is the part that catches people out. After years of a hard market, D&O pricing softened considerably, with premium reductions of 15 to 40 per cent common through 2025 on the back of strong capacity from local and Lloyd’s markets. Businesses in sectors with heavier claims and insolvency activity, such as construction, food and beverage, healthcare and technology, saw less relief than others.
The catch is that the pace of those reductions is slowing, and D&O could be the first line to turn as the market firms up again, with rising derivative actions and regulatory pressure doing the pushing. Put simply, 2026 may be one of the last comfortable renewals for a while. Boards that lock in broad wording and sensible limits now, while capacity is still generous, are in a far stronger spot than those who wait for pricing and appetite to tighten back up.
Five questions to ask before your next renewal
- Are the limits still enough? Defence costs for a single regulator investigation can run into the millions long before any finding is made. A limit set a few years ago may already be behind the exposure.
- Is Side A properly protected? If the company becomes insolvent or cannot indemnify its directors, Side A is the individual’s last line of defence. Check it is there and that it is enough.
- Does the wording respond to today’s risks? Climate and ESG disclosure, AI oversight, cyber and Director Penalty Notice exposures should all be tested against your policy rather than assumed.
- Is it D&O or Management Liability you actually need? Make sure the structure fits whether you are private, listed or raising capital.
- Who is genuinely covered? Former directors, incoming directors, senior managers and directors of subsidiaries can all fall in or out of cover depending on how the policy is written.
The bottom line for Australian boards
A soft market makes it tempting to treat D&O as a box already ticked. That would be a mistake. The exposure behind the policy, personal, regulatory and financial, has grown faster than most boards realise, and the pricing tailwind that made cover cheap is fading. The businesses that come through 2026 in good shape will be the ones that used this window to get their governance story straight, their limits right and their policy structure sorted.
At Crucial Insurance and Risk Advisors, we help boards and senior executives cut through the jargon, pressure test their exposures and structure D&O and Management Liability cover that will actually respond when it counts. If your renewal is coming up, or you just want a second opinion on whether your directors are properly protected, get in touch with our team or book a Crucial Insurance Risk Review.
References
ASIC, Regulatory Guide 280: Sustainability reporting
Australian Institute of Company Directors, What is D&O insurance?
Australian Taxation Office, Corporate Plan 2025-26
This article was written by Tony Venning,
Managing Director at Crucial Insurance and Risk Advisors.
For further information or comment please email info@crucialinsurance.com.au.
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