Warranty and indemnity insurance is a relatively new class of business, and as it begins to mature, the focus of insureds is increasingly on claims service rather than simply price. Clients now expect to deal with an experienced claims team that is collaborative and service driven, which ultimately leads to a smoother and more efficient process, according to Liberty GTS’ upcoming annual claims briefing. The report is an in-depth assessment of M&A insurance claims and is based on data drawn from almost 500 notifications received since 2019 in 14 jurisdictions across the Americas, Asia-Pacific (APAC), and Europe, Middle East, and Africa (EMEA).
Claims service is particularly important for insureds that have already been through a claims process: They will know that not all M&A claims experiences are the same. They can vary depending on the experience and attitude of the insurer and its claims-handling team.
It is increasingly important for insureds to look beyond the lowest premium and nonessential coverage add-ons and scrutinize at the outset which insurer or entity will be sitting behind their policy. This includes making inquiries about how that insurer or entity is set up to handle claims and its track record for paying claims. The reason is obvious: Claims handling is at the heart of what insurers sell. Maintaining confidence in the claims process is critical for the continued success of the product.
Claims processing requires collaboration from the outset, with transparency and communication being key to a successful resolution
The claim-investigation phase should be a collaborative process and a continuation of the partnership already in place between the insurer and its insured. The key is to try and strike the right balance between ensuring that the insurer gets the information that it needs to reach a coverage decision and making sure that the process of getting there does not become overly burdensome and drawn out.
This is not always a straightforward tightrope to walk and relies on the reasonableness of the positions taken by both sides and an understanding that it can take time to bottom out particularly complex issues. It helps, of course, if the claim is being handled by an experienced claims team that understands the product and has been through the claims process many times over. This cannot be taken for granted given the large number of new insurers that have recently entered the M&A insurance space (either through writing the business directly or via a managing general agent).
Of course, we do not always share the insured’s views on certain issues, but when this happens, we will always try and work with our insured to resolve any differences in a sensible and pragmatic way. In our experience, full-blown coverage disputes remain rare.
Ultimately, M&A insurers have an incentive to behave reasonably in a claims scenario. If they don’t, their reputation may suffer, and this could impact their standing in the eyes of repeat buyers of the product, law firms and brokers. This matters much less to a seller, especially if they are transacting with the buyer on a one-off basis. Indeed, we have seen many instances of sellers taking very aggressive positions in response to the same claim that has been presented to us, resulting in the seller and the buyer becoming quickly entrenched in a dispute.
There are other equally important stakeholders in the claims process
It is important to appreciate that there are more stakeholders in the claims process than just the insured and the insurer. The broker has an important part to play, as demonstrated by the fact that most brokers now have dedicated M&A claims experts with whom we work daily. The broker is in a prime position to understand the needs of both parties, and it can communicate to an insurer where resolution of a particular claim is especially urgent or crucial to a business and can similarly communicate to an insured why certain documents need to be produced in order to substantiate a claim. These types of candid conversations are crucial for maintaining momentum, helping prevent the breakdown of communication and limiting the likelihood of disputes arising. This works to everyone’s benefit.
The parties’ professional advisors also have an important part to play to the extent that they are involved in the claims process (this is not the case for every claim, as we handle many ourselves without any external assistance). Ultimately, we view the engagement of advisors as a tool to make the claims process more streamlined and less cumbersome for our insureds given the complexity of some transactions and the level of scrutiny sometimes required to confirm coverage. In terms of selection, we hand-select advisors, specific to our business, which have both the proper expertise and outlook toward the claims process that will promote an efficient and collaborative experience (by, for example, ensuring that we are asking the correct questions from the outset). It is vital that the insured’s advisors approach the claim in the same way and with an understanding that achieving the correct balance between collaboration and advocacy is important. Adopting an overly aggressive position at the outset is likely to be counterproductive and actually increases the risk of a dispute, especially if insurers have not been provided the information that they reasonably need to make a coverage assessment.
The claims process can be more challenging when there are multiple insurers involved
We are seeing a trend in EMEA (and to a lesser extent in APAC) whereby insureds are increasingly looking to build a tower of policies that are each written by a different insurer in circumstances where, depending on the limit required, they might have taken out a single policy written by one insurer. This practice is, of course, already common in the Americas.
Depending on the claim’s size, an insured will have to deal with multiple insurers (and, quite possibly, legal advisors) in a tower scenario. Inconsistent positions might arise on issues such as requests for further information and documentation, handling of a third-party claim, and even coverage. This is undoubtedly an issue that the market needs to address, with better coordination between layers. Large losses bring the risk that significant time and cost can be incurred on navigating these issues rather than focusing on helping the insured recover and move forward as effectively as possible.
Of course, many of these claims-handling challenges can be avoided by adopting a single-policy approach because the insured will need to deal with only one insurer. The usual reason that is given by some insureds for not going down this route is that they have reservations about putting their trust in a single insurer in case they don’t pay or they behave improperly in the event of a large claim. 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 and has dedicated in-house M&A claims experts is best placed to respond promptly and sensibly to a claim, whatever its size, and to deliver an expedited and efficient claims service to its clients, no matter the policy limit.
