2.5
Insurance Trends in Private Equity:
Portfolio-Style Programs
Portfolio-Style Programs Gain Momentum (Again)
As PE professionals continue to look for efficiencies in cost management, and insurers are doubling down on PE business (see Trend 2.4), many clients are seeking to consolidate their coverages using a portfolio-style approach for property, casualty, and management liability.
This movement to a portfolio-style program is a cyclical approach to risk management and insurance that tends to come up once or twice every decade or so, and each time the approach is a bit more refined than the last. The rationale always makes sense: “If we can put together a portfolio program for all of our portfolio companies, we can achieve economies of scale across the entire portfolio and broaden coverage while reducing costs.”
Similar to a PE firm that considers launching a captive arrangement, the approach and logic on the property and casualty side of the equation make sense until one or more of the companies have a bad claims year, which will likely lead to all companies paying more to support the claims and premium needs of the single company.
In addition, insurers can sometimes be very picky about which companies within the portfolio are within their appetite and which are not. If a PE firm has 12 companies and the insurer likes the risk profile of seven of them but not the other five, the PE firm may ask: “What’s the point of going through the work to implement a portfolio program that only covers seven of our companies?” This is one of the main reasons, among several others, why we do not believe a portfolio program approach to property and casualty risks makes sense now, in the past, or in the future, unless underwriting methodologies change in a meaningful manner.
However, we do see significant advantages to implementing a consolidated, portfolio-style approach to both cyber liability and management liability, including D&O liability, employment practices liability, fiduciary liability, and commercial crime. The rationale for this is that these coverages are normally implemented for the benefit of the PE firm and portfolio company management, at the direction of the PE firm or portfolio company board of directors.
Where Portfolio-Style Programs May Make Sense:
Cyber Liability
Management Liability
Property & Casualty
Cyber and management liability coverage can also be negotiated to be exactly the same across the portfolio, and insurers frequently do not put as much underwriting concern on individual operations within the portfolio company. As a result, there is less probability that an insurer will only elect to underwrite seven of the 12 as noted in the above example.
Typically, the cyber and management liability coverages can dovetail nicely with the fund-level general partnership liability program and fund-level cyber liability program to ensure there are no gaps in coverage between the PE fund-level coverage and portfolio company coverage. It also helps streamline deal processes and can safeguard against companies within the portfolio having different insurers, different limits and retentions, and different premiums.
We see this as a very positive trend that will continue throughout 2025 and 2026.