Calling seller's current insurer and accidentally disrupting coverage?

June 07, 2021

by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management in Miami Beach, FL, USA

I'm under LOI on a home services company asset sale. I have permission from the seller to contact the current broker since, I figure, just creating a new policy post-acquisition with the current broker will be easier than finding a new broker (so long as the price and coverage is right).

However, when the seller gave me permission, she wanted to make sure that there'd be no disruption in coverage as a result. Is that a risk?

Because, if it is a risk, then it might make sense to NOT use the current broker (since I'd need insurance coverage to start on day 1 and thus couldn't wait until post-acquisition to start shopping around).

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Reply by a professional
from Northwestern University in Kansas City, KS, USA

At times that is true, but it is more important to alert the carrier that there is a potential change coming on the policies. To alert them the current owner would need to put the carrier and broker on notice that a potential change in ownership is coming. From there, it is important (if an asset sale) to include or talk with the attorney on how any preexisting liabilities will be handled post-close and who will be taking ownership of the policies. If the policies cannot withstand a change in ownership, it will be important to begin searching to find the new policies so there is not a gap in coverage under the ownership. The broker can be changed at any time, but is not always necessary, and it is important to not interrupt the renewal cycle and hurt the potential for new coverage. If a company is in the middle of their insurance renewal###-###-#### days prior to the renewal date of the policies), it can effect the results.

Happy to discuss this with you directly. I am a commercial insurance broker that works in the M&A and PE space. Feel free to shoot me a note and we'll schedule a quick call: redacted

Reply by an investor
from University of Nebraska in Austin, TX, USA

I'm assuming the insurance broker is not the actual carrier...can't think of a reason why there would have an issue.

If you do have time prior to close, definitely best practice to find a separate broker to price out your policies, ideally find one focused in your company's industry. They may find gaps the prior agent didn't recommend or realize. I've found insurance brokers work much harder (when trying to win new business than when they are maintaining old business. I saved $20K annually by having a new broker re-price out my policies...found my the historic broker was not actually shopping out and finding the best policies for me (surprise, surprise...). Good luck!!

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