P&E Firms: Benefits When Portfolio Companies Have Quality Insurance

When you’re a private equity firm, you have to be responsible in terms of how you invest. This means you want to look at what the portfolio companies are doing to be financially responsible. Rather than looking solely at performance, a little bit of research goes a long way, particularly in terms of the insurance they have.

Financial Stability

There are all sorts of different investment strategies you may use as a private equity firm. Whether you choose unpopular assets, low-cost bonds, or ones that pay a significant dividend, a strategy is in place. Plenty of portfolio companies are out there, so one of the best ways to narrow down the list of where you will invest your money is to ask questions.

Find out such things as:

  • How financially stable they are
  • What types of insurance they have
  • What legal issues they have encountered
  • What insurance claims have been filed

When you ask these questions, your private equity firm benefits because of learning more about the company. You need to look at overall financial stability because if the company loses value, you’re likely to lose money within your investment.

Protection Against What-If Scenarios

Portfolio companies are like any other companies out there. They will encounter problems from time to time. How they are able to recover is going to have an impact on how well their stock performs and ultimately how your private equity firm does.

Plenty of legal issues occur with businesses all the time. When your portfolio companies have the right insurance, they are protected against such what-if scenarios as:

  • Copyright issues
  • Disgruntled employees
  • Faulty products
  • Theft
  • Natural disasters

Think about all of the money that could be spent by a company if they didn’t have the necessary insurance policy. For example, if a disgruntled employee were to sue, it could cost thousands of dollars in legal fees. Then, if the employee were to win, the settlement could be tens of thousands of dollars. This is enough to have a major impact on any company, regardless of their size and revenue stream.

This is why it’s important that companies have insurance – and in the right areas. A company should sit down and look at all of the potential issues that could affect them. From there, it’s easier to determine what insurance policies should be in place. Otherwise, a company becomes vulnerable to one issue or another.

Issues Resolved Faster

The portfolio companies you choose to own within your private equity firm need to be insured by an insurance company that is reliable and financially sound. This will ensure they are able to take care of claims faster. The last thing you want is for a company to file an insurance claim and have it take months for payment to come.

Consider what happens if issues aren’t resolved quickly.

One of the first issues is that when issues take longer to reach resolution, it’s likely to receive bad press. Particularly in an issue with a disgruntled employee, it’s going to make the news. The employee is going to do their best to drag the company’s name through the mud. Bad press is never a good thing and it usually sends stock prices plummeting, which is bad for you.

Another issue is that when it takes longer for an insurance company to resolve a claim, including making payment, it has a negative impact on operations. A portfolio company might have to deal with the finances on their own until they get the refund from the insurance company. This could prevent having the funds to pay for new equipment, open new locations, pay for marketing campaigns, and much more.

Ultimately, this means you have to look at whether the portfolio company has quality insurance. You don’t want to worry about bad press or inefficient operations because of an investigation taking too long or the insurance company taking too long to cut a check.

Custom Insurance for the Companies

Every company and every industry is a little different in terms of how they operate. When you realize this, you will know it’s important for insurance to be customized so the insurance has coverage where it needs it the most – and fits within the budget of the company, too.

The insurance that a restaurant needs is much different from what a real estate developer needs. This is because of the industry they’re in, the number of customers they have, and the potential issues that could arise. As such, you want to be smart about the insurance that a company obtains – and working with an insurance company that understands various industries will make a difference.

If a portfolio company doesn’t take a custom approach to obtaining insurance, they’re likely going to have gaps in their coverage – and this spells trouble for you. it doesn’t have to be the case. You simply have to do your homework on what insurance is out there and take a proactive approach to ensuring that portfolio companies have custom policies. Further, you want the policies to be from a company that has a history of financial stability so you don’t have to worry about issues should a claim be filed.

The more your private equity firm benefits, the better it is for everyone involved, as well as for your bottom line.

Learn about the ways to get the customized insurance policies that will protect portfolio companies by contacting us at Surmount Insurance Services for a quote.

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