This thought leadership piece was kindly provided by Protean Risk. For more information, please contact Tom Spraggs (TomSpraggs@proteanrisk.com).
In the last decade, we have seen an explosion in the variety and extent of available technology. While large parts of the economy were negatively affected by Covid-19, the technology sector saw huge growth as businesses and families increasingly relied on tech to stay connected, entertained, and operational while physical contact was restricted. However, despite market-beating returns for many Venture Capital and Private Equity firms, the industries continue to face limited appetite from Insurers.
Risk Exposures Historically, the insurance market has exercised more caution when considering these sectors compared to other Asset Management firms. Factors that have limited insurer appetite include:
- The ‘High Risk’ nature of the Investments
- The Illiquid nature of the Investments
Current factors limiting appetite now extend to:
- Concerns surrounding sufficient funding for portfolio companies
While large sectors of the economy struggled to raise finance, the tech sector raised £26bn of funding in 2021 – a large increase from £11.5bn in 2020. Demonstrating how portfolio companies were able to raise funds (if required) is important to showcase the long-term viability of your investments. - Exposure from Board positions held at portfolio companies
Insurers will require accurate information on any past/present board positions held at portfolio companies. Effectively articulating the type of board position (observer or active, etc.) held alongside details of the Directors’ & Officers’ Liability cover in place at portfolio companies is vital (this extends to renewal dates, limits purchased and the Insurer). - Risks associated with retail/consumer facing businesses
Portfolio companies with business models aimed at consumers will require clear explanation, especially any that are regulated by the FCA. Growing awareness of consumer rights and redress options mean that higher claims frequency is expected where retail customers are serviced. It’s important to be clear on what exactly falls within the scope of responsibility for your portfolio companies and how they limit their liability and mitigate consumer risks. - Digital Assets Investments
Insurer appetite remains very limited in these sectors. However, we have recently seen some small but significant developments including new providers which are not excluding coverage. We have a dedicated team specialising in advising clients in these sectors and continue to work with insurers to increase understanding. With recent positive moves from the UK government, we would hope Insurer appetite continues to develop in line with the emerging regulatory landscape.
CHALLENGES YOU MAY HAVE FACED WITH YOUR INSURANCE RENEWAL
The insurance market has gone through a period of unprecedented change in the last 18-24 months, with firms facing the following challenges:
- Premium and deductible increases, often substantial
- Cover limitations • Narrowing underwriting appetite
- Restrictions on the availability of Outside Directorship Liability in some market segments
- Portfolio companies themselves struggling to obtain suitable insurance cover, which can impact your own risk exposure/ insurance policy
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