Insurance Due Dilligence

Thinking of buying a business to expand turnover and take your own operation to the next level? There are professionals out there to assist you in this process, ensure that the target of your interest is suitable and furthermore ticks all the boxes when it comes to financial probity but what happens when the deal is done.

Insurance due diligence when buying a company is an often forgotten exercise, which can have serious consequences if it is not carried out correctly or indeed in some cases not carried out at all.

So! What is it?

Due diligence is the process of checking the insurance programme of the company you wish to acquire and ensuring that it does exactly what it says on the tin. Its sole objective is to protect the interests of the purchaser so that in the event of a claim the policy will respond and avoid a financial loss. Normally an acquiring company will inherit an insurance programme that protects the assets, business continuity and liabilities of the organisation being purchased. However to be certain that your interests as the buyer are protected you need to ensure that the programme is adequate and fit for purpose. For example it is no use having a material damage policy where the sums insured are for a fraction of the values at risk.

An insurance due diligence exercise will provide confirmation that sums insured are adequate and that the programme is placed with insurers of the highest standing. Furthermore, when carried out properly the investigating broker will provide advice on the levels of deductible carried by the policies, the existence of warranties and the level of compliance with these requirements.

Purchasing a company is a big step for any organisation. It makes sense therefore when carrying out investigations into whether the partnership is right for you that all aspects of their business practice are thoroughly examined to ensure the integrity of your investment going forward.

If you would like any further advice on insurance due diligence then please contact Peter Hattersley.

Spring/Summer 2007

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