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A crucial component
of the merger-and-acquisition process is the risk management
due-diligence review, which includes the careful and thorough
investigation of facts represented or implied by a selling property.
Property and casualty insurance
and risk management are important aspects of the due-diligence
process. They are vital because of their significant potential
impact on the sale price, the purchase agreement, or even the
completion of the merger or acquisition.
The Risk Management Review
The risk management due-diligence
review uncovers undisclosed and unanticipated exposures and liabilities
that an acquiring organization may inadvertently assume in a
merger or acquisition. It also determines the competency of the
acquiring and acquired organizations’ risk management programs,
which can suggest opportunities to improve protection and achieve
cost savings after the merger or acquisition is completed.
How The Review Is Conducted
The risk management review includes
investigation of three major areas:
Organizational
— Analysis of the organizational structure
— Analysis of the effectiveness of the risk
management function
Financial
— Evaluation of claim or loss reserves that may be
accrued on financial statements
— Investigation into the funding methodology used
for payment of claims
— Evaluation of methods of alternative risk
financing
Technical
— Investigation into the existence of liability
coverage for discontinued products,
environmental risk or other catastrophic
exposures
— Evaluation of the design and structure of
directors and officers liability
insurance
— Overall analysis of insurance contracts and
other risk-transfer mechanisms
In addition, the risk management
review can include reviews of current and historic insurance
policies, contractual obligations, uninsurable loss exposures,
captive insurer arrangements and other risk-transfer mechanisms,
employment-related liabilities, and the process of selecting
agents, brokers and other service providers.
The Importance Of Independence
Selection of an independent consultant
to lead the risk management due-diligence team is crucial to
the merger and acquisition process. Because independent consultants
are or should be unbiased third parties, they avoid actual or
perceived conflicts of interest in their evaluations and recommendations.
To maintain complete independence,
Warren, McVeigh & Griffin, Inc. is compensated directly by
its clients to whom we are solely responsible. We refuse assignments
that would impair our independence or objectivity. We do not
perform consulting work for insurance companies or insurance
brokers or agents. We do not sell insurance, participate in commissions
nor receive any form of compensation other than client-paid fees
and revenues from our publications. We are not owned by, nor
do we own any interest in, any insurance company, agent, broker,
claim administrator or other entity whose services may be the
subject of our analysis.
Warren, McVeigh
& Griffin, Inc. is uniquely qualified to perform risk management
due-diligence reviews. Please contact us for information regarding
assignments and proposals.
C. C. (Bud) Griffin, CPCU
President
Newport Beach, California
949/752-1058 T
949/955-1929 F
ccgriffin@griffincom.com
Donald S. Huff
Senior Associate Consultant
Bozeman, Montana
406/585-7189 T
406/582-0186 F
huffds@in-tch.com
Gary W. Griffin, ARM
Senior Vice President
Newport Beach, California
949/752-1058 T
949/955-1929 F
gary@griffincom.com
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