Insurance glossary · Deals and private equity
insurance due diligence.
Insurance due diligence is a review of a target company’s policies, claims and gaps before a deal closes, so the buyer knows what it’s inheriting and what it will cost to fix.
What does insurance due diligence look at?
The target’s current policies and limits, past claims and loss runs, open and expected claims, contract insurance requirements, gaps against the business’s actual risks, and how each policy behaves at a change in control. The result is a picture of what the buyer inherits and what has to change.
Why does insurance diligence matter if the target already has insurance?
Because having policies isn’t the same as having the right ones. Low limits, missing coverages, claims-made gaps, uninsured liabilities and policies that cancel at closing all become the buyer’s problem the day the deal closes.
How does insurance diligence affect the deal?
Findings can change the price, the purchase agreement’s indemnities and special indemnities, the scope of reps and warranties insurance, and the cost of the post-closing insurance program, which affects the model.
What does a typical report include?
A schedule of current policies, a loss history summary, a list of gaps and risks ranked by severity, the change-in-control effect on each policy, a recommended post-closing program with estimated cost, and items to address in the purchase agreement.
How does insurance diligence relate to reps and warranties insurance?
The reps and warranties underwriter reviews the diligence reports, including insurance diligence. Thin diligence leads to broader exclusions, so a solid insurance review can mean better coverage on the deal itself.
When should insurance diligence start?
As soon as the target shares policies and loss runs, usually right after the letter of intent. Some issues, like a claims-made tail or a new workers’ comp program, take time to solve before closing.
What are common findings?
Under-insured property values, low liability limits for the business’s size, missing cyber or employment practices coverage, workers’ comp experience that will transfer to the buyer, claims-made policies with no tail plan, and contract requirements the current program doesn’t meet.
by type of buyer.
- Private equity sponsorsA standard part of acquisition and add-on diligence, often alongside reps and warranties insurance.
- Independent sponsorsA clear insurance picture helps capital partners and lenders get comfortable with the deal.
- Search fundsInsurance diligence on a smaller company often finds the gaps that matter most to an owner-operator.
- Family officesDirect investments benefit from the same review institutional buyers run.
where you’ll see it.
- Diligence request listsRequests for policies, loss runs, claims details and certificates.
- Purchase agreementsSpecial indemnities and insurance covenants that come out of diligence findings.
- Investment committee memosA section on insurance findings and the cost of the post-closing program.
know what you’re inheriting.
Riza’s insurance due diligence reviews the target’s program, ranks the gaps, estimates the post-closing cost and flags what belongs in the purchase agreement, on the deal’s timeline.
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Coverage it touches: Insurance due diligence