After a subdued period over the last two years, Mergers & Acquisitions (M&A) activity is gaining momentum. According to the Global Private Markets Report 2025 issued by McKinsey & Co., deal counts and values have increased, with a notable rise in buyouts. This uptick is expected to continue into the latter half of 2025, driven by improved debt financing conditions and a backlog of transactions. Deal structure nuances and the use of continuation vehicles are more prevalent, providing liquidity options for limited partners and allowing general partners to retain high-performing assets. The secondary market (sponsor-to-sponsor exits) is also experiencing growth. Despite the current environment presenting opportunities and signs of optimism, investors will likely require greater levels of due diligence to gain the comfort they need to sign and successfully close transactions.
As deal activity accelerates and competition intensifies, the stakes for both buyers and sellers have never been higher. In this dynamic environment, a robust due diligence process is essential—not only for uncovering risks and validating value, but also for ensuring that transactions proceed smoothly from negotiation to integration.
Insurance due diligence is a critical component of any M&A transaction. Financial, legal, and operational diligence is often at the top of the totem pole, while insurance due diligence, although a crucial workstream, at times plays an underestimated role. As a corporate asset on the balance sheet, insurance warrants as much attention and review as any other company asset in connection with a merger, acquisition, or investment. If the limits of liability, terms and conditions, quality, or types of insurance are inadequate, the asset may be impaired, and risks assumed by the buyer are increased or un/underinsured.
Insurance due diligence involves reviewing and assessing the target company’s insurance programs, risk exposures, and potential liabilities, making it a vital aspect of any transaction and identifying risks that could “blow up” a deal. Notably, and merely one of many factors, insurance premiums typically constitute a material cost for any business. The detailed insurance analysis and recommendations provided through the insurance due diligence process deliver valuable input into the financial modeling process and purchase price negotiations of a transaction. Failure to purchase insurance for a particular exposure or under-accruing for losses within a large deductible can lead to substantive adjustments to a company’s total cost of risk and, ultimately, the purchase price of the transaction.
This review is helpful to all parties involved, whether on the buy-side, sell-side, or debt-side of the transaction. For a buyer, it assists in negotiating specific insurance provisions or verifying insurance warranties being offered. It also helps mitigate risks associated with the transaction, allowing the buyer to make informed decisions about their risk strategy and go-forward insurance planning. For a seller, it demonstrates transparency and enhances the credibility of the target company, facilitating a smoother transaction process. Lenders and/or financiers also often rely on insurance due diligence to ensure that assets are adequately protected, and lenders are making informed decisions regarding loan terms and conditions.
The critical information due diligence provides includes, but is not limited to:
Insurance due diligence helps uncover past, present, and potential future claims that may not be immediately apparent in financial statements. By reviewing claims history, open reserves, and litigation exposure, buyers can better assess contingent liabilities, especially in industries with long-tail risks such as healthcare, construction, or manufacturing.
A comprehensive review ensures the target company has appropriate coverage across all major risk areas, including property, casualty (general liability, business automobile, workers compensation, and pollution liability), financial lines/management liability (cyber, directors & officers, employment practices liability, fiduciary liability, crime, and professional liability), and other ancillary lines of insurance. It also assesses the sufficiency or inadequacy of policy limits, deductibles, exclusions, and endorsements for a particular risk profile. This benefit may become critical in highly regulated industries, where non-compliance or underinsurance can result in hefty penalties or business disruptions.
Transition planning is a key benefit of insurance due diligence. Buyers must understand whether the target’s policies are claims-made or occurrence-based and whether tail or run-off coverage is needed post-closing. This analysis helps avoid gaps in coverage during the transaction period and into the future. Additionally, in-force policies may have change in control provisions or anti-assignment clauses that restrict or cancel coverage effective date of acquisition. A thorough review of these terms is a material aspect of due diligence.
In addition, it informs decisions on whether to integrate the target’s insurance programs into the acquirer’s risk management framework or maintain separate arrangements temporarily.
The insights from insurance due diligence directly support the drafting of representations, warranties, covenants, and indemnification clauses in the purchase agreement. If material deficiencies or risks are uncovered, buyers can demand specific remedies, such as:
This helps allocate risk more clearly between buyer and seller and strengthens the contractual protections for both parties.
Value Creation and Integration
Strong insurance programs are not just about protection; they also reflect a company’s risk culture and operational maturity. Well-managed claims, competitive premiums, and strong broker relationships can indicate good governance, which is a value driver.
Moreover, due diligence can identify opportunities for cost synergies post-close, such as consolidating insurance programs, renegotiating broker fees, or improving safety practices to reduce future premiums.
Insurance due diligence has evolved far beyond a simple compliance checklist. It is now a vital strategic lever in the M&A process, safeguarding deal value, minimizing risk, and smoothing the path for post-transaction integration. As transactions grow in complexity and regulators sharpen their focus, a rigorous approach to insurance due diligence is not just recommended—it’s indispensable for success in today’s private equity landscape.
This update is not intended to be exhaustive, nor should any discussion or opinion be construed as legal advice. Readers should contact legal counsel for legal advice. All rights reserved.