The Weekly Thought

Insurance Considerations for Turnaround Circumstance or M&A Activities

During my tenure as a corporate risk manager, much effort went into mergers & acquisitions (M&A) activity. Insurance due diligence was a significant part of the overall effort. Similar due diligence is necessary when owners of a company find themselves in economic circumstances requiring a turnaround team. Sometimes the turnaround team is hired in an effort to facilitate M&A or just to bring better efficiencies into the organization.
In my experience, both circumstances typically yield significant efficiencies in the context of insurance relationships and cost.
Most commercial insurance transactions are heavily influenced by personal relationships between the broker and the customer. The relationship web continues with the broker’s relationships with, and business obligations to, the insurance underwriters and their companies. Those relationships often go unchallenged for years if not decades.
M&A and turnaround activity challenges those relationships, as does meaningful competitive bidding of insurance programs. By meaningful, I mean those involving multiple brokers, not merely the incumbent “marketing” renewals to their stable of contracted insurance companies. True competition occurs only when an independently verified competitive bidding exercise occurs.
The introduction of a turnaround or M&A team usually imposes meaningful challenges to the status quo relationships and thus savings and improvements.
A recent consulting client of ours brought on a turnaround consultant who, in turn, brought CIC into the mix to challenge the insurance relationships. That effort, over the course of several months, resulted in the client benefiting from a nearly 50% savings in their insurance program, despite being in one of the hardest hard insurance markets in memory. Hopefully, the other efforts of the turnaround specialist resulted in similar efficiencies in other aspects of their engagement for this client.
One can expect that during these challenging economic times that consolidation will occur at a faster pace than previously. Companies are looking at new ways to do business, as well as opportunities in the M&A space, both on the buy side and the sell side. We suggest that insurance should not be overlooked or left to the last minute. Insurance is both and expense and an asset. Significant in both respects. It should be looked at as such.

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