Risk Partners Life Sciences Roundtable 2025, thank you very much!
Risk Partners Life Sciences Roundtable 2025, thank you very much!
We warmly welcome you to our article on E&O insurance (often referred to as “Professional Indemnity Insurance for AIFMs” in the LPA) and are pleased that you have found your way to us. In this article, we would like to focus specifically on the most important liability insurance for capital management companies under the KAGB. For GPs of private equity or venture capital funds, as well as other investment companies regulated under the KAGB, we have also covered the topic of D&O insurance for GPs; you can find a detailed explanation of this under“D&O Insurance for GPs of Venture Capital and Private Equity.” For those responsible for buy-and-build transactions, we’ve compiled valuable tips on D&O insurance at the following link:D&O Insurance for the Platform in Buy-and-Build Transactions. We’ve explained the still-relevant general liability insurance—please do not confuse this with E&O insurance—on the respective topic pages“Private Equity”and“Venture Capital.”
While D&O insurance is usually the first question our clients ask, we’ve noticed that E&O insurance is often less well known. Yet, in our experience, it is a crucial risk management tool for fund management companies. That’s why we’re committed (see, for example, Risk Partners in VC Magazine) to raising awareness of this type of insurance. We hope this article contributes to that effort, as nothing is more frustrating—for many reasons—than an uninsured “E&O claim” that then leads to a D&O liability case simply because the insurance doesn’t work.
If you have any questions about E&O insurance based on this article or would like a market tender, please do not hesitate to contact us. In addition to our good access to the relevant insurers, we are also happy to offer our special concepts (e.g. Risk Partners D&O/E&O Moonshot Protect or Risk Partners D&O/E&O Private Equity Asset Protect as a fully written set of terms and conditions or our Risk Partners E&O Prime Protect), so that you are insured in a market-leading way.
Are you responsible for a venture capital fund? Then we have created a separate topic page for you, including a free guide with benchmarks on sums insured & insurance premiums (costs), tips and specific claims.
Any questions? Book your preferred date directly!
E&O insurance, also known as professional indemnity insurance for the fund manager (KVG / AIFM), is also known as "Errors and Omissions (E&O)". It serves to protect the fund, the management companies and the employees and managing directors from claims that could result from sales or asset management services. In connection with the management of the fund, this primarily includes claims by LPs/investors or, in rare cases, third parties (e.g. authorities) who have suffered financial loss due to actual or suspected errors or omissions on the part of the persons involved.
The core scope of E&O insurance is financial loss liability insurance and should therefore not be confused with business/office liability insurance (usually a few hundred euros for investment companies). The latter covers third-party damages in the area of personal injury and property damage as well as non-pecuniary losses (financial losses, e.g. resulting from personal injury such as "wage replacement benefits for a tradesman who has had an accident"). E&O insurance as pure financial loss liability insurance only covers financial losses. The scope of liability insurance includes
Venture capitalists (VCs) and private equity companies (PEs) operate in a highly regulated environment with constantly changing legal requirements and jurisdictions. A key aspect of effective E&O insurance is to protect management and employees from potential errors that can occur in this challenging environment. This is often ensured by clear provisions in the policy terms and conditions that cover classic operational errors in the course of business (E&O).
Potential liability risks include, among others:
It is crucial to regularly check whether the scope of cover of the insurance corresponds to the scope of activities of the fund company, as these criteria are used in the event of a claim. It should also be noted that claims usually require a financial loss. They are therefore more common in less successful funds, although even well-performing funds are not immune to legal risks, particularly in relation to regulatory matters. In this way, insurers indirectly take on some of the performance risk on their own balance sheets - despite a standard performance exclusion in the market. Understandably, the insurer does not want to assume any liability for the GPs' performance commitments.
We let our work and our clients speak for us.
"As a licensed AIF capital management company focusing on venture capital, we attach great importance to achieving sustainable returns for our limited partners through sound investments and supporting our portfolio companies on their growth path as strategic partners through A11. Risk Partners impressed us with its in-depth understanding of VC, the advantageous and dynamic insurance terms of the Moonshot product, and its expertise in complex regulatory environments. We are therefore happy to recommend them."
"The high professional quality and customer orientation in the advice and cooperation with Mr. Eckstein and his team ensure that we always feel that we are in good hands with the special requirements as a globally active SDAX company, for example in complex questions of capital market liability. As a listed investment company, Risk Partners' structured and professional support is decisive for us when choosing our broker."
"As a venture capital company, we were very satisfied with the advice provided by Björn and his team. We were impressed by their in-depth understanding of the industry and their innovative strength, which is why we are happy to recommend Risk Partners."
"Risk Partners supports us very reliably with comprehensive expertise, both in the area of the special risks of a venture capital fund and with a sound understanding of the life sciences industry. We greatly appreciate the cooperation with Mr. Eckstein and his team and especially the professional and forward-looking advice, which is optimally tailored to our needs. We can highly recommend the choice of Risk Partners' specialists to other VC funds and life sciences companies."
"As a young company, we spoke to a number of insurance brokers about the insurance issue and in the end we were happy and grateful to have found real VC experts in Risk Partners. While it was difficult elsewhere, Risk Partners understood us straight away, competently explained our industry risks and was able to quickly implement our wishes on the insurance market on the basis of Risk Partners' own concepts. We can therefore only recommend the professionals at Risk Partners."
"We had an excellent experience working with Risk Partners and their team. Their deep expertise in the venture capital sector and exceptional innovation stood out, and we are happy to recommend Risk Partners without hesitation."
"Our collaboration with Risk Partners was consistently positive. We were particularly impressed by their in-depth industry knowledge in the venture capital and life sciences sectors and their innovative strength with their own solutions. We are therefore happy to recommend Risk Partners and feel very well looked after."
Unfortunately, the question of the ideal sum insured cannot be answered simply or solved mathematically. Rather, it is advisable to entrust yourself to a specialist broker with extensive claims experience and carry out an individual analysis that takes into account factors such as the investment and investor structure (keyword: "friendly LPs/GPs"). This analysis can then be translated into a suitable sum insured.
In addition, experience has shown that the cost factor of E&O insurance is significant (minimum premium: four figures). Ideally, a large number of insurance sums should be requested as part of a market tender and various structuring options for higher insurance requirements (keyword: excess / co-insurance solutions) should be discussed.
Although this article is intended to deal exclusively with pure E&O insurance, the question of stand-alone E&O insurance versus "blended cover" together with D&O insurance also plays an important role. In the case of "blended cover", a uniform structure aims to avoid demarcation problems between the two financial loss liability policies. The D&O risk should therefore also be taken into account in the sum insured. It is important to note that claims experience shows that with a functioning E&O insurance policy, the unpleasant D&O claim often does not occur at all or is reduced to initial legal advice costs (so-called precautionary legal advice costs). Particularly in the case of fund companies with more than 1 billion assets under management, we see a desire to assess the D&O risk and the E&O risk separately, so that "blended cover" is only purchased up to a certain amount or two separate insurance programs are purchased. Fund companies with lower assets under management generally opt - for good reasons - for a combination of E&O and D&O insurance. One good reason is a higher aggregate sum insured than would probably be achieved with the expensive solution of separate programs.
Finally, in the context of the sum insured, the question of whether the sum insured should be maximized once or twice must be clarified. This is not about a multiplier for a sum insured in the event of a claim - here the sum insured remains the upper limit - but about the provision for several insured events in one insurance year. As this is usually accompanied by an additional premium of 15%, it is advisable to consider a higher sum insured.
Basically, the most important tip is to entrust your advice to specialists who are experienced in transferring more complex fund profiles on the insurance market and can advise you accordingly. In this context, you should pay attention to E&O concepts developed by the broker (e.g. Risk Partners E&O Moonshot/Private Equity Protect). Here you have the advantage that these are designed from the customer's point of view and include appropriate improvements (e.g. exclusions, obligations, cover modules, grace periods). For example, we regularly see insufficient grace periods in the market for statutory extended liability, which regularly only allow 12 months premium-free and then only 3 years with an expensive single premium. This is too short!
We also recommend a broad definition of the insured activity, which ideally does not allow any discussions in the event of a claim. In addition to asking about the activities, your specialist broker should also have access to a corresponding set of special conditions in which, for example, activities from the LP agreement are automatically included.
Under EU Directive 2011/61, in conjunction with Delegated Regulation (EU) No. 231/2013 and its transposition into national law (Section 25(6) of the KAGB (Germany) or Section 8 (“Initial capital and own funds”) of the AIFM I legislation in Luxembourg; (This note applies mutatis mutandis to the AIFM II legislation effective as of summer 2026), E&O insurance can meet the costly capital requirements set by BaFin or CSSF under full regulation and thereby create additional value. Since insurance benefits—particularly under comprehensive policy terms—exceed the legally required minimum, it is recommended that a side letter focused on the statutory requirements be added for BaFin.
While the fund’s sales and advisory functions are covered under “standard” fund E&O insurance, specific sales models—such as those involving joint ventures—may be considered in the context of sales. Depending on the insurance portfolio, it may make sense to separate this into a distinct coverage (e.g., under Section 34f of the German Trade Regulation Act (GewO)), which, as mandatory insurance, is more easily approved by the relevant Chamber of Industry and Commerce (IHK). The same applies to highly operational fund management companies that play a significant advisory and development role in companies and restructuring cases. This coverage can also serve as recourse coverage to meet the requirements for liability limits.
Multi-year contracts! We see a very customer-friendly market environment in our negotiations in 2025. This will certainly change again in the near or distant future, so we recommend that our clients secure good conditions, e.g. through 2-year contracts.
Are you responsible for a private equity fund? Then we have created a special topic page for you, including a free guide with benchmarks on sums insured & insurance premiums (costs), tips and specific claims.
"We are one of the market leaders and drivers of innovation in the insurance of private equity and venture capital funds. As an owner-managed specialist insurance broker, we can promise you leading expertise and continuity in the quality of our support, which is now a unique selling point in times of the "war of talent".
E&O insurance plays a crucial role in the risk management of fund companies and serves to protect the fund, the management companies and the employees and directors against claims that could result from sales or asset management services. It is important to understand that it is a financial loss liability insurance that covers only financial losses and therefore should not be confused with public/office liability insurance.
In the highly regulated environment in which venture capitalists (VCs) and private equity firms (PEs) operate, protection against potential errors and omissions is of paramount importance. E&O insurance provides an important protection mechanism here by covering classic operational errors in the course of business activities, thus protecting management and employees from potential liability risks.
When determining the ideal coverage amount, it is advisable to consult a specialized broker with extensive claims experience and to conduct a customized analysis that takes into account the specific needs and risks of the fund company. The question of whether to opt for standalone E&O insurance versus “blended cover” in combination with D&O insurance also plays a significant role and should be carefully weighed, particularly for fund companies with more than 1 billion euros in assets under management (AuM).
Another important aspect is the broad definition of the insured activity in order to avoid discussions in the event of a claim. This can be achieved through a corresponding set of special conditions that also automatically includes activities from the LP agreement. In addition, the focus of activities (e.g. new SPV / co-investment vehicles, convertible loans instead of equity investments, etc.) should be discussed and regulated in the terms and conditions.
Finally, E&O insurance can also add value by meeting BaFin's expensive capital requirements when fully regulated.
