There is a significant, but often overlooked correlation between employee safety and insurance in the private equity world. Often times casualty programs like workers compensation, auto liability, and general liability see losses driving a significant portion of a firm’s insurance costs. For firms looking to grow, establishing a robust safety culture, and consistently applying it across the portfolio as acquisitions are made is vital. Doing so can impact insurance costs and the predictability of a risk management program as a whole and can be a deciding factor in a firm’s growth trajectory.
What employee safety means today
The definition of employee safety has changed drastically over the last few years. The overarching rule of thumb – as simple as it seems – is that a worker will show up to do their job and not get hurt at work. This will look different depending on the industry. For workers in manufacturing jobs, for example, a safe work environment means a clean facility, protective measures on equipment, or ergonomically set up machinery. For an office job, workers are in an environment that is clean and are provided with adequate furniture. For retail, safety extends to active shooter protocols impacting not just the safety of your employees, but your clients as well and helps protect your reputation. Employee safety naturally extends to protection for anyone who comes into your building or environment, whether to work, shop, or visit.
Fostering a safety culture
Employee safety extends into workplace culture. Having a culture where safety is prioritized by both the employer and employee is critical, no matter the industry. To foster this, employers can provide employees with the best training possible for how to stay safe on the job. And, for certain jobs where inherent risks cannot be eliminated, such as lifting patients in healthcare facilities or working at high heights in construction, simply creating awareness of those risks can help contribute to a safer environment and the mitigation of losses. What’s more, when employees feel that the employer is truly concerned about their safety, they likely will be less litigious in the event of a claim.
Two main impacts of safety culture
So, how do current views of safety and the necessity of a strong safety culture impact insurance for private equity firms and, subsequently, growth? It does so in two core ways:
- Costs. There is no doubt that having a solid safety culture directly impacts insurance pricing. Whether a firm self-insures any potential losses or transfers them to a carrier, if employees are more protected and less likely to get hurt on the job, insurance pricing will be lower because the chance of potential losses, which impact premium pricing, is lower. There may even be an ancillary effect on other lines of business whereby insurance costs are driven down. This is particularly important for private equity, as it translates to more available funds that can be invested in growth, not higher insurance premiums.
- Predictability. When safety is a consistent theme during an acquisition, there is a major, positive impact on the predictability of the overall insurance program. Onboarding employees from an acquisition into a company that has a well-established safety culture gives insurance underwriters the ability to feel comfortable with growth and the future of the company. When underwriters first price programs, costs are based on the company today. If underwriters know that as a firm grows a portfolio that it will continue to be a low insurance risk, the process to add acquisitions to the insurance program will be much smoother and there should be fewer surprises when it comes to insurance premiums. What it boils down to is that a carrier wants to know that the company they insured yesterday will have the same approach to safety tomorrow, no matter the number of employees.
A good insurance carrier is a safety ally
It would be short-sighted for a private equity firm to view their insurance carrier solely as a collateral gatekeeper. Instead, a carrier can be instrumental in helping a firm build a culture grounded in safety. A carrier that is a true risk management partner will help identify all of the risks a company faces and develop strategic plans to help mitigate and manage that risk. Liberty Mutual, for example, brings over a century of risk mitigation legacy to client relationships and uses deep industry knowledge through tools like the Workplace Safety Index to identify trends and inform safety strategies.
These types of partnerships are mutually beneficial: a firm develops a more sophisticated risk management approach and safety culture across its portfolio and as a result, the carrier is likely to see fewer losses. In fact, during periods of rapid growth and development, it is particularly beneficial for a carrier to be involved from the get-go as they can engineer out risk and build a best-in-class safety culture, so losses are not incurred from the beginning. Employee safety is key to a well-managed insurance program. Private equity firms that take this to heart and are intentional about creating a sophisticated safety culture in partnership with their carrier can be poised for growth – all with insurance being a catalyst in the process, rather than a hindrance.
This website is general in nature, and is provided as a courtesy to you. Information is accurate to the best of Liberty Mutual’s knowledge, but companies and individuals should not rely on it to prevent and mitigate all risks as an explanation of coverage or benefits under an insurance policy. Consult your professional advisor regarding your particular facts and circumstance. By citing external authorities or linking to other websites, Liberty Mutual is not endorsing them.