MPR offers a financial lines package policy to portfolio companies to protect them and their management (specifically including private equity directors) against the risks and costs that exist and emerge in their operational environment.
The financial and reputational risks facing portfolio companies and their management teams are ever evolving and growing in complexity. Protection of the assets of both is important within what can be a challenging and changing environment. The Management Risks Insurance for Portfolio Companies package policy is an integrated solution for portfolio companies and provides four important sections of cover, each with its own limit. This policy provides a quick and easy to place solution for portfolio companies.
Why do your clients need Management Risks Insurance?
- Directors (including those from the private equity firm), officers and senior managers can be exposed to a broad spectrum of civil, criminal and regulatory actions. The use of specialist lawyers can be critical in ensuring the correct response to a variety of scenarios and hourly rates can be high.
- Sharp focus and expectancy may be on portfolio companies to meet performance metrics within an often unpredictable operational landscape.
- Good human resources practices can go a long way to mitigate exposures to claims by employees but cannot eliminate them completely.
- Keeping pace with change, technological advancement, exceeding customer expectations and growing the business in line with plan demand comprehensive risk management strategies. Management Liability Insurance is a key element of this.
- According to the BDO, more than a third of companies (39%) reported an increase in fraud in 2020 compared to the previous year. The average value of fraud in 2020 was a reported £245,000. The shift to remote working has amplified security threats with two-thirds of businesses reporting an increased risk.
What does the policy cover?
A comprehensive package policy providing cover for:
- Directors and Officers Insurance;
- Employment Practices Insurance;
- Company Insurance;
- Employee Crime, Crime using Computers and Social Engineering Crime.
What does an underwriter like to see?
- A private equity firm with experience in the sector of the target organisation.
- Realistic financial projections.
- Companies with strong trading history and track record.
- Ongoing involvement of legacy management team members.
Is there anything an underwriter wouldn’t insure?
- Underwriter risk appetite largely follows the standard approach, so challenges exist on those trades characterised by higher hazard risk profiles and poorer historic experience than the average.
- Companies in newer sectors or those where competition is more intense will require more scrutiny.
- Overseas activity will introduce additional challenges, considerations and questions from an underwriter.
Why choose MPR?
- Deep experience over many years in all the products we underwrite
- Simple and clearly stated policy language with the removal of ambiguity
- A straightforward, broker focussed, technical and service based proposition
- Strong financial rating
- Comprehensive and constantly improving cover
- Management liability policy language has developed and matured significantly in recent years. The result is policy language which is clear and which has evolved to accommodate the changing landscape and exposures faced by companies and their directors. However, many of these are a ‘one size fits all’ and are not calibrated to the specifics of portfolio companies and their operational structure.
- An additional insuring clause for private equity firm reimbursement cover
- The bespoke wording includes an additional insuring clause for private equity firm reimbursement cover and names the private equity firm specifically.
- An additional limit of liability for loss of private equity directors
- An extra limit is ringfenced for the loss of private equity firm directors and can only be used by them. This is a limit in addition to the main policy amount
- Waiver of subrogation rights against the private equity firm;
- This changes the standard language to remove this provision, which would ordinarily be available against the private equity firm.
What can go wrong?
Rising regulatory risks remain one of the biggest challenges facing many businesses.
Between 2012 and 2018 the number of claims based on regulatory prosecutions tripled. According to The National Audit Office there are more than 90 regulatory bodies in the UK with total expenditure close to £5 billion a year. Regulator risks are consistently raised as the greatest concern amongst the directors of UK businesses.
Employment practice claims are on the increase and can be time consuming and expensive.
In 2013, the government introduced fees for bringing claims to employment tribunal but the Supreme Court ruled them unlawful in 2017 because the government had made procedural errors in the way the fees were introduced. Claims have since risen nearly threefold. In the most recent statistics, claims have gone up by more than 10% over the previous year and the average time for a tribunal hit 40 weeks. Only 8% of cases were successful at tribunal while 24% were settled out of court, 23% withdrawn by the claimant and 28% dismissed or struck out.
The potential impact of employee dishonesty can be damaging, and the risk is rising.
According to PWC, economic crime has reached its highest level in the past 24 months with 56% of UK businesses surveyed stating that they were impacted by fraud, corruption or other economic crime. The 2020 figure was the highest in the history of their Economic Crime Survey. The cases that hit the headlines tend to involve larger amounts or unusual scenarios, but businesses of all sizes are vulnerable.
Litigation is often used as a tactical weapon, particularly in foreign markets.
Loss of chance and diversion of opportunity are key risks in the private equity environment, along with intellectual property issues. Common scenarios include allegations of breach of equitable duty of confidence, breaches of fiduciary duties and unlawful means conspiracy.
New trading opportunities also present new challenges. Litigation often has little merit and can be ‘tactical’ but can require a robust response, nonetheless. Claimants gamble on scaring the competition away, but lawyers will often be needed to be engaged and insurance can provide a smoother pathway to a solution for a company.
