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Three areas PE execs need to pay attention to in 2024

Amy Gross, General Manager, Global Private Equity for Liberty Mutual
Three areas PE execs need to pay attention to in 2024

The end of a year – it’s a time when many of us are prone to indulge in retrospection as well as make space for thinking about what a new year will bring. Given the complexity of risk today, the pace of change and the ever-present pressure to make savvy investments and sustain long-term portfolio growth and stability, it’s an exercise well worth undertaking for PE firms. There are several themes that my team and I have seen emerge this past year that we anticipate will carry through and shape the PE space in 2024.

Weather has changed

There is no denying weather patterns have changed. While there are other factors that impacted property over the previous 12 months – like increased cost of labor and inflationary pressures – disrupted weather patterns aren’t going to change and the market is not going to go back to where it was. Going into 2024, while property increases may not be as high as they have been, we don’t anticipate a soft market cycle returning, a massive reduction in rates or increase in capacity. For PE firms, the underlying implication is clear: the time to adjust is now. If a firm doesn’t like its pricing, they should proactively work with their risk and insurance teams to seek out other ways to adapt instead of just waiting on a reversal in market cycle, whether that be investing in different types of buildings in different locations, exploring alternative program structures or risk sharing strategies.

The courts are open

The backlog of cases from COVID is beginning to lessen and we are starting to see the outcomes – and they don’t bode well for pricing. All the liability issues that were top of mind pre-COVID – legal system abuse, big jury verdicts and litigation funding – returned full force in 2023. As a result, going into 2024 firms need to expect that the liability market is going to quickly harden. We are already seeing carriers pull back on excess towers, raise rates on casualty, and grapple with ongoing challenges with auto.

Fundamental issues in US with insurance.

The nature of the courts and legal system abuse directly impact the cost of insurance and, if systemic changes don’t occur, we aren’t sure if we will ever see relief with rates. The cost of insurance may even become prohibitive for some. What is needed is broader involvement from companies across industries to help legislators and regulators understand the impact of legal system abuse. While we have seen an uptick in jumbo companies taking part in conversations and efforts, the industry needs more middle market and mom-and-pop companies to say they cannot afford to be in business or customers can’t afford their products because of high insurance prices. Going into 2024, the industry and clients it serves need to stand together to fight unjust policies that are leading to price increases.

While efforts to reasonably reform the legal system will take time, today PE firms can look at two areas to know if their insurer is minimizing the impact of this pressing challenge.  First, identify how the insurer manages claims – particularly legal judgement and settlement costs. Do they use AI to select defense counsel based on the specific venue involved, do they test legal strategies and arguments through mock trials, et cetera. Second, is the insurer committed to helping clients understand key challenges that drive insurance cost and availability– such as legal system abuse – and working with them to address those issues.

To 2024 – and beyond

The insurance industry is facing multiple challenges that will undoubtedly impact the clients they serve in both short and long-term ways. For PE firms, recognizing these trends and reframing them as opportunities to take creative, different approaches will set their businesses and portfolios up for success in 2024 and beyond.

To learn more about how Liberty can help private equity firms manage risk and grow, visit our private equity page.

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Photo of Amy Gross

Amy Gross

General Manager, Global Private Equity

Boston, MA

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