2023 was another big year for private equity transactions, with firms announcing deals amounting to $124 billion in Q4 alone. Now 2024 is taking this growth to another level, as investors turn toward disruptive industries such as fintech and the artificial intelligence space to increase profits. At the same time, this is set against a background of constantly evolving exposures.
To thrive in this nuanced risk landscape, it’s vital for private equity (PE) and venture capital (VC) funds alike to get the right insurance cover. Here are the top five exposures they need to be aware of as 2024 progresses, plus how to address them with comprehensive cover from CFC.
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Professional liability
The misrepresentation of investment opportunities to investors remains a top exposure for PE and VC funds, with misleading documentation, inadequate due diligence and governance issues all key contributors.
CFC’s policy’s professional liability coverage addresses these exposures, giving businesses confidence they have cover in place if the worst happens. Our coverage gives a bespoke definition of professional services for each insured, to ensure the definition accurately reflects their activities.
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Cyber security
In 2023 cyber attacks cost victims an average of £15,300, with the cost of dealing with a data breach often far higher. It’s tempting to think cybercriminals only target large businesses, but the stats show this is far from the truth. 61% of SMBs have experienced at least one cyber attack, as threat actors look to target businesses with less mature cyber security practices in place. Investors will expect private equity and venture capital firms to take cyber risk seriously, investing in mitigating measures that can protect business as usual.
CFC’s cyber extension strengthens policyholder’s cover with proactive cyber attack prevention services, the largest in-house incident response and claims team in market, and comprehensive cover for a variety of cyber incidents.
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Outside directorship
PE and VC funds often take seats on the boards of their portfolio and investee companies, increasing their exposure to directors and officers (D&O) claims from entities outside of their own control framework.
CFC’s PE and VC cover ensures directors and employees are covered when they take up these outside directorships with supplemental outside directorship liability (ODL) cover.
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Regulatory investigations
As the regulatory landscape continues to evolve, we’re seeing increased scrutiny and investigations from regulatory bodies. Even if the regulator finds no evidence of wrongdoing, investigations can still result in significant costs for impacted businesses as they work to provide the information that’s required.
CFC’s policy provides coverage for these regulatory investigation costs.
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Social engineering
What PE and VC funds lack in transaction volumes is made up by transaction values, which can reach the tens of millions. This exposes funds to the threat of social engineering where criminals persuade employees to inadvertently transfer funds to a fraudulent recipient’s bank account or organization.
To protect against direct financial loss, CFC’s PE and VC policy includes crime cover, giving funds protection against the growing area of risk.
PE and VC businesses come with a unique risk profile. At CFC we designed a modular IMI policy, which includes E&O, D&O, Crime, Cyber and EPL cover, to meet their unique needs, with our tailored definition of professional services ensuring the full range of PE and VC activities are covered.
No longer do PE and VC businesses have to take out multiple policies. Our single, comprehensive policy ensures they can get the protection in a simple, cost-effective way, preventing gaps in coverage and complications in the event of a claim.
Our management liability product covers portfolio companies across industries, and businesses involved in M&A transactions can benefit from our transaction liability suite of products.
If you have any questions, please reach out to fi@cfc.com. We’d love to hear from you.
