Due Diligence: Financial Management–Insurance and Risk

Performing a thorough due diligence on a potential acquisition is one of the most important tasks that a buyer needs to do when making a purchase decision. We’ve put together a list of items that buyers will want to investigate when talking to a seller.

This is part of a large series. Be sure to scan our Buyers Blog for the category Due Diligence.

Now we’re moving on into evaluating the Financial Management of your potential acquisition portion of your Due Diligence tasks. The purpose of this section is to discover your risks and the existing insurance coverage.

Insurance & Risk Management

– Does the company have an overall risk mitigation plan that it updates regularly?

– Review all corporate insurance, using a schedule from the company’s insurance agency. If there is material pending litigation, determine the extent of insurance coverage and obtain insurance company confirmation. Note whether insurance terms are for “claims made” or “claims incurred,” as well as the amounts of deductibles.

– Have aggregate insurance amounts been penetrated, or is there is history of coming close to the aggregate totals?

– Have there been substantial premium adjustments in the past?

– To what extent does the company self-insure its activities? Are there uninsured risks that the company does not appear to be aware of or is ignoring?

– Review any key-man insurance and present value calculation.

– Review product liability insurance, including description of claims history.

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