Buy or sell: why Insurance Due Diligence is so important

The Mergers and Acquisition (M&A) market has been a consistent stream of transaction for the last decade, however over the past 2 years we have seen unprecedented values with nearly $900B in deals consistently transacted each quarter in 2021 worldwide. These exponential numbers have seen Insurance Due Diligence become a key part of any M&A work. This is because it identifies key concerns, risks and liabilities that may ultimately affect the purchase price and expose ongoing concerns, acquiring businesses should be apprised of.

Insurance Due Diligence work involves a comprehensive review of a company’s insurance program. Unlike a typical broking report, Insurance due Diligence is a factual document that is privileged and which can be relied upon by financiers. Those personnel that conduct Insurance Due Diligence work within a broking houses are ‘ring fenced’ to ensure confidentiality and ensure any conflict of interest concerns that may be observed by parties are minimised.

What does Insurance Due Diligence cover?
  • Review of a company’s risk profile to understand and assess its markets, products, dependencies, risk improvements and the like.

  • Identifying and addressing development solutions of the target company’s pre closing liabilities that may be required.

  • Identifying current Insurance costs and provision of indicative future costing for financial model base on suggested Go Forward insurance program.

  • Evaluation of the current insurance program to ensure:

  • - The policies can be properly transferred at Financial Close or revert to run off.
    - Whether the policy coverage and limits are aligned to industry standards.
    - The adequacy of each policy’s terms and conditions.
    - The adequacy of insurers credit rating.

  • Design of a Go Forward program, structuring coverage to match the transaction documents and finding solutions for the uninsured and underinsured risks.

  • Arrangement of run off coverage, such as Directors & Officers Insurance.

  • Identification and evaluation of claims histories, including uncovering whether there are ongoing concerns or potential claims that have not been reported or adequately insured.

Though often underestimated, Insurance Due Diligence is a key ingredient for any sale, acquisition or investment. It can be a valuable tool for financial modelling, leverage for repricing bids and even addressing coverage deficiencies. It also creates benefits where insurance can be utilised as a tool for its business and transaction, such as warranty and indemnity insurance.

At Bellrock, we advise every company looking to sell, acquire or invest to conduct due diligence. It is our experience that the benefits and insights gained far exceed any diligence fee. Our advisory arm is well equipped to provide Insurance Due Diligence to any company going through an M&A transaction. We will work with you to ensure compliance, reliance and privacy are adhered to in every aspect of the transaction.

For further information on Due Diligence or to obtain a quote for services, please contact us via the form below.

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