Get to know your D&O, PE firms urged

Private equity firms may not be placing enough focus on the quality of insurance cover in place at portfolio companies, and are generally taking on more risks as their businesses change. This according to research commissioned by Mactavish, which also suggests that, with commercial insurance policies “becoming increasingly generic”, the chances of claims being paid are reduced.

The consultant’s survey of senior private equity professionals suggests that just 20% take an active role with directors’ and officers’ cover, and a further 40% take an active role but leave it to the portfolio companies to decide upon cover specification. Some 17% play no role in helping portfolio companies choose their D&O cover, with the balance of 23% unsure.

Client services director at Mactavish, Liam Fitzpatrick said, “Only too often is an insurance policy, like D&O, dusted off and looked at when it needs to be relied upon. By that stage, it could be too late for the private equity firm to either fill a gap or fix a problem with the existing policy wording for a portfolio company."

When asked about the overall due diligence private equity firms run in terms of reviewing the insurance policies of companies they are considering acquiring, just under at third described their process as ‘very robust’.

“The private equity industry is under greater scrutiny than ever before to monitor and take an active role with its investments. It also has to demonstrate greater due diligence before investing," Fitzpatrick added.

"Furthermore, the Insurance Act 2015 requires companies to adequately investigate all the risks they face and disclose these to their insurers. Given this, if private equity firms are not reviewing the insurance cover of portfolio companies, they are not across one of the biggest risks those organisations are facing and it could even make some insurance cover invalid.”

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