Commercial insurance can be a pain point for any private equity firm: from overpaying on premiums (a sunk cost regardless of risk management efforts and whether claims are filed) to unanticipated exposures (which can bankrupt a business before its gets out of the gate).
Many private equity groups are turning to a tool Fortune 500 firms have been using to protect and grow their businesses for decades: Private Insurance.
Participating in Private Insurance allows you to fund hidden business risks and build a separate insurance surplus with tax deductible premiums. A Private Insurance strategy can fill the gaps left behind by commercial insurance policies and add value to a portfolio.
As investors realize the risk management value of Private Insurance – part of a greater marketing and valuation strategy – the middle market is adopting Private Insurance at a rapid rate.
Not only does Private Insurance incentivize prudent risk management, they can also serve as an additional income stream.
Private Insurance should be evaluated as part of a broader value-add strategy for private equity portfolios. Private Insurance Strategies are unique financial vehicles that can not only reduce expenses and exposures of an organization, but also create a new income stream.