Navigating Private Equity: How Proactive Risk Mitigation and Consistency Positively Aid PE Firms and Their Portfolio Companies
Navigating Private Equity: How Proactive Risk Mitigation and Consistency Positively Aid PE Firms and Their Portfolio Companies

Interest in private equity (or PE) is on the rise. PE firms are buying across a breadth of booming industries — construction, manufacturing, health care and technology, to name a few — and are constantly on the lookout for ways to grow and diversify their portfolios.

As with all growth opportunities, risk management is a must.

“The main risk lies in maintaining consistency across the portfolio,” said Charlie Tice, private equity national practice lead & regional vice president, Commercial Accounts Group, Travelers. “Having a larger national company that understands the space and [that] can deliver a holistic offering to the different portfolio companies helps drive uniformity in how they manage risk.”

Travelers aims to be that national leader for PE portfolio companies and has been in the PE space for many years. The team serves as a proactive partner in risk for its PE clients and their portfolio companies so that risk mitigation need not be a hindrance to growth. This preemptive approach starts with understanding what’s in the portfolio and working together to mitigate its risks.

“By identifying and deploying the right resources, we can help drive better outcomes for our clients,” Tice said.

A Variety of Companies, a Variety of Risks

Charlie Tice, Private Equity National Practice Lead & Regional Vice President, Commercial Accounts Group, Travelers

Private equity’s biggest asset may also be considered its largest risk: Investing in multiple companies operating across several industries is a boon to portfolio diversity, but each industry comes with its own set of hazards.

“Travelers’ extensive underwriting expertise across various industries positions us to better serve private equity firms and their portfolio companies,” Tice explained. “Our wide array of products and deep industry knowledge allow us to effectively address the unique risks and exposures of each portfolio company.”

Having that level of versatility and specialization in underwriting not only enables PE firms to successfully manage the insurance needs of their portfolio companies, but it also allows them to take that step toward proactive risk mitigation. The Travelers team can work with the company to help identify ways to decrease worker injuries and streamline operations. Some examples include how to lessen high strain exposures, reduce lost time, and address vehicle hazards with robust driver management programs.

Coverage Consistency Is Critical

Drawing upon a rich dataset, the Travelers team works to provide fast and accurate quoting, which firms value in the due diligence process.

“While placing individual lines of coverage may not pose significant difficulties, the real challenge for PE firms and their agents and brokers is finding an insurance company that can offer a consistent suite of products in a short window of time. Travelers understands that speed and responsiveness are critical to our relationships. We believe our infrastructure and underwriting specialization will continue to lead the way,” Tice shared.

Securing a single organization that can consistently provide insurance coverage to meet a PE portfolio’s requirements does not need to be a challenge. Travelers has worked hard in the space to provide this consistency to its clients time and again.

“We have the capability to work with PE firms across a wide range of insurance needs. This includes core P&C lines like GL, property, workers’ compensation and auto insurance, as well as specialty products,” Tice said.

In addition, Travelers has made investments in technology and data analytics to enhance the team’s ability to assess and underwrite risks accurately.

Further, the PE practice works closely with Travelers’ Bond & Specialty Insurance division to provide customers with tailored solutions to meet their insurance needs. This group offers a wide range of underwriting capabilities and products, including professional liability for PE firms and their management teams, as well as transactional risk insurance, management liability and surety bonds for the portfolio companies.

“As we work on portfolio company placement, we involve Bond & Specialty Insurance to help ensure we’re offering as many lines of business as necessary for each opportunity,” Tice shared. “We often end up suggesting eight to nine lines for a portfolio company, which can help drive a consistent risk management approach and experience for the PE firms we serve.” This, he noted, is particularly important when it comes to lines of insurance that are difficult to place.

Rapid Growth and the CFO

Being knowledgeable across industries and consistent in coverage and assistance is what sets Travelers’ PE team apart. The company takes these capabilities one step further with the right tools and insights to help leaders and their teams succeed, including consistent investments in meaningful research — most recently, on the changing role of the CFO and the impact to risk management.

CFOs of PE companies are in a unique position to effect positive risk management. However, managing rapid growth following a merger or acquisition can be taxing.

According to Travelers’ 2024 CFO Study, 70% of CFO respondents said their jobs were impacted by M&A, particularly the challenges around merging workforces and properties. Of note, 38% said their risk mitigation strategy was reactive instead of proactive — something that cannot be ignored.

“We were surprised to learn how many CFOs wait until an incident has occurred to act,” Tice said. “Our risk control teams can help companies implement programs that support a strong safety culture. These proactive actions help businesses protect their brands and reputation.”

The Travelers study showed M&As can be an enormous burden on a CFO’s time and resources, yet it is the CFO’s duty to review and integrate all financial systems, processes and data into a cohesive plan. Their due diligence assessment plays a key role in the financial health and viability of the target company. This is an area where the right PE partner can be a game changer.

“These deals bring together different workforces and companies’ needs. Travelers offers extensive risk control services and resources that can help companies effectively manage these risks without requiring additional investments on their part,” Tice said.

“Our wide range of products and services can help CFOs, who are traditionally responsible for insurance purchasing, to identify and address potential blind spots that may arise due to rapid growth.”

A Broad Range of Offerings, a Holistic Approach

Private equity is a fast-growing business with the potential to deliver strong returns for investors. Travelers has consistently and successfully been a part of PE growth. The team is looking to help customers make the right decisions for their portfolio companies from the start.

“At Travelers, we excel at identifying opportunities and proposing thoughtful, wide-ranging solutions that draw from our diverse capabilities as an organization. Rather than focusing on difficulties in specific lines, we take a holistic approach to understanding the client’s needs,” said Tice.

By leveraging its breadth of expertise across multiple lines, Travelers aims to offer tailored solutions that address the unique challenges and opportunities each client faces.

“This,” said Tice, “allows us to provide value beyond what a narrow focus on individual products would deliver.”

To learn more, visit: 6 Risk Management Strategies for Private Equity Firms.

SponsoredContent

BrandStudioLogo

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Travelers. The editorial staff of Risk & Insurance had no role in its preparation.

The post Navigating Private Equity: How Proactive Risk Mitigation and Consistency Positively Aid PE Firms and Their Portfolio Companies appeared first on Risk & Insurance.