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.