Insurance Due Diligence

In today's complex financial landscape, understanding insurance due diligence can be a game changer. Whether you are acquiring a new company, investing in property, or reviewing your insurance policies, thorough due diligence can protect you from costly mistakes. This blog post will guide you through the essential steps to conduct effective insurance due diligence, and why insurance matters, whether you are acquiring a company in full or a significant stake on it.

Understanding Insurance Due Diligence

Insurance due diligence purpose is to carefully evaluate insurance policies and coverage options before committing to a deal. Insurance policies provide detail of real data and information about the company that may or may not have been disclosed.

Lets take a closer look at what we need to know:

• Coverage limit per year and per claim

• Deductible amount and conditions

• Type of policies in place: D&O, E&O, liability, business interruption, tampering, BBB (banks), etc

• Claims history if any, and history of unreported claims (interviews with employees)

• Information requested by the insurers

• M&A insurance details

• Insurance coverage dates (start and end of coverage)

• Insurance coverage exclusions

• Insurance layers if more than one (umbrella policies, stop loss, Side A coverage, for example)

• Who is responsible of insurance at the company?

• Insurance company changes in the last 3 years

• Insurance-reinsurance coverage stakes

• Reviewing whistle blower reports

By knowing the above due diligence analysts can formulate questions such as why of the maximum coverage, per year and per claim limits, deductibles, exclusions and other items of insurance that may tell the same or a slightly different story.

why reviewing insurance matters?

Insurance companies are the best on risk profiling, insurance requirements are carefully analyzed before issuing policies. Insurers ask for real data and information that can be used to assess the risk by an acquirer. Every items in the insurance policy has a why and an answer for it.