Insurance is often one of the least valued investments by companies, and during renewals negotiations focus on the premium value, leaving the true objective of risk transfer in the background. However, during a business acquisition and sale process, the insurance program assumes an increasingly relevant role, as during due diligence the buyer seeks to understand not only financial performance but also the risks that may affect the company's ability to generate future earnings.
During due diligence, the main active policies, claims history, coverage limits, deductibles, and in certain sectors, risk management reports are typically requested. The goal is not to know how much the company pays in premium, but rather to understand which risks remain with the company because they were not transferred, or were insufficiently transferred, to an insurer. Identifying coverage gaps may lead the buyer to demand specific indemnities in the Share Purchase Agreement, price retentions, or other contractual safeguards.
The article presents concrete examples, such as a food industry company without adequate Product Recall coverage, a technology company without cyber risk insurance, or industrial companies with buildings and equipment insured for outdated sums that may not cover current reconstruction costs. Although these situations rarely individually render an operation unviable, they can influence the negotiation of contractual guarantees, the transaction structure, and the agreed price itself.
Marsh and Aon include insurance coverage analysis in their Insurance Due Diligence services, and in larger transactions Warranty & Indemnity Insurance allows certain risks to be transferred to an insurer. The final message is that preparing a company for sale also involves demonstrating that the main risks have been identified, assessed, and transferred where appropriate, as the buyer is acquiring confidence that earnings will be sustainable in the future.
