Claims advantages for taking out a single policy with a single insurer

Simon Radcliffe : Claims Counsel

Simon Radcliffe

Claims Counsel

The combination of bigger insured deals, favourable pricing and an increased focus on de-risking deals, driven by uncertainty as to the impact of COVID-19 on M&A, means that insureds are buying larger limits.  However, only a handful of carriers can offer large line sizes – up to $200m in Liberty’s case.  The majority are limited to line sizes of $50m or less.

In the event that an insured wants to buy a large limit it has two options – either it can look to build a tower made up of a number of policies each written by a different insurer or it can look to take out a single policy written by one insurer.

There are a number of distinct advantages with the single policy approach that a prospective insured should consider before making its decision.   These include:

  • An insured will only have to deal with one insurer, avoiding unnecessary duplication and ultimately saving time and money.
  • The risk of inconsistencies in cover between policies which can occasionally arise in a tower scenario is eliminated.
  • It is not necessary to obtain the agreement of multiple insurers to a policy endorsement or an assignment.
  • An insured will not be tripped up by the requirement to notify multiple insurers.

The greatest benefit, however, is seen at the claims handling stage, particularly in the event of a large loss.  In a tower scenario, an insured will have to deal with multiple insurers (and, quite possibly, legal advisors) some of whom may take inconsistent positions.  A huge amount of time and money can be wasted on this at the expense of focusing on helping the insured recover and move forward as fast as possible.

Despite the above, there is still reluctance amongst some insureds to embrace the single policy approach in certain jurisdictions – most notably the US.  The usual reason that is given is that they have reservations about putting their trust in a single insurer in case they don’t pay or behave improperly in a claims scenario.

The key to getting comfortable with this risk is to understand at the outset who sits behind the policy and their claims handling capabilities.  An established insurer with a strong balance sheet that writes M&A insurance for its own account is going to be best placed to respond promptly and sensibly to a claim, whatever its size – see this article for the reasons why.  It is also essential to partner with an insurer that has dedicated in-house M&A claims experts embedded in their underwriting teams.  An insurer with all of these characteristics, like Liberty, is uniquely equipped to deliver an expedited and efficient claims service to its clients no matter what the policy limit.

This website is general in nature, and is provided as a courtesy to you. Information is accurate to the best of Liberty Mutual’s knowledge, but companies and individuals should not rely on it to prevent and mitigate all risks as an explanation of coverage or benefits under an insurance policy. Consult your professional advisor regarding your particular facts and circumstance. By citing external authorities or linking to other websites, Liberty Mutual is not endorsing them.

The importance of considering claims handling when selecting an M&A insurer

Simon Radcliffe : Claims Counsel

Simon Radcliffe

Claims Counsel

The M&A insurance market has become increasingly crowded in recent years due to the significant growth in the number of specialist MGAs (managing general agents) looking to capitalise on the increased appetite for the product and strong deal flow.

These MGAs, under pressure to establish market share, try and differentiate themselves both on pricing and scope of coverage.  It is important, however, for a prospective insured to step back and consider, before making a decision, how its claim will be dealt with if the deal does not go as expected.

The key point for insureds to understand in this context is that MGAs are not the risk-taker for the purposes of the policy and will usually have little or no authority to settle a claim, instead needing to refer settlements back to the panel of insurers that provide their capacity.  Some of these insurers might be completely new to the market, meaning that they have no prior experience of handling M&A claims and no track record of paying M&A claims.  Some might only stick around for a short period before exiting the market entirely, or deciding to provide capacity to a different MGA.  They are able to do this with relative ease because they have not invested in the people and infrastructure necessary to write the business directly for their own account.  This means that an insured can sometimes find that the entity handling its claim no longer has any ongoing interest in the MGA that wrote the risk and is more inclined, therefore, to take technical points.  The risk is that this can all combine to result in a protracted and unpredictable claims process, which is the last thing an insured wants when it is looking to recover and move forward as fast as possible following a loss.

It is essential, therefore, for an insured to give proper thought at the outset to which insurer or entity will be sitting behind its policy.  Making the right choice at this stage can save time and money down the line in the event that it becomes necessary to make a claim on the policy.  This is particularly the case in the event of a large loss.  An established carrier writing the business directly for its own account will have been through a claim of this nature before – it will understand the challenges involved and its claims handling team will be well equipped, therefore, to deal with them.  In addition, an insured will only have to deal with one decision maker throughout the claims process – a key consideration bearing in mind that both speed and clarity of response can be critical in this scenario.

There are increasing signs that the mindset of insureds is changing, with many placing an increasing amount of emphasis on the value of claims service when selecting which insurer to partner with.  This is especially noticeable for insureds who have already been through the claims process because they understand better than anybody that the failure to do so may result in buyer’s remorse.  This is no surprise – after all, the true value of a M&A policy lies in the ability of the insurer to deal with claims promptly when they arise and to honor them whatever their size.

This website is general in nature, and is provided as a courtesy to you. Information is accurate to the best of Liberty Mutual’s knowledge, but companies and individuals should not rely on it to prevent and mitigate all risks as an explanation of coverage or benefits under an insurance policy. Consult your professional advisor regarding your particular facts and circumstance. By citing external authorities or linking to other websites, Liberty Mutual is not endorsing them.