How Is Insurance Due Diligence Different From A Coverage Review?

It is common practice for insurance brokers to provide a client or prospective client coverage reviews of a target Company’s insurance program. The reviews are beneficial from a risk management perspective and typically include market pricing benchmarking. However, a coverage summary alone should not be confused as a substitute for a comprehensive due diligence work product.

While thorough insurance due diligence will include a coverage summary section, it should go beyond this to address all matters that are ‘deal impactful’ to a financial buyer. This includes coordination with other work streams, such as quality of earnings analysis for impact on enterprise valuation purposes or the legal team for review of the purchase agreement terms tied to insurance matters. 

An insurance due diligence report should also recognize and appreciate its audience. While a broker coverage review is designed for an internal company audience, an insurance due diligence report is written for a buyer and their third parties, including lenders and Representation and Warranty Insurance (RWI) underwriters. Knowing the difference and being prepared with proper due diligence will help to avoid unnecessary frustrations and delays as the parties approach signing and closing.