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Tom Gilroy explains how buyers should use an insurance broker during acquisition diligence, from pulling loss runs and checking class codes to spotting coverage gaps before closing. The conversation focuses on how insurance pricing, claims history, and risk management practices can materially affect deal economics and post-close exposure.
Business buyers and first-time acquirers who need practical insurance diligence guidance before closing a company.
An insurance broker should be brought in after LOI, once there is serious intent to close, so the buyer is not paying for diligence on a deal that falls apart.
Loss runs are a core diligence document because they show the claims history on policies already in place and help reveal recurring exposure before closing.
Insurance classification mistakes can dramatically change cost, especially in workers' compensation where the wrong class code can make the policy several times more expensive.
Claims history functions like a risk credit score: more claims usually means higher premiums, while a cleaner track record gives the broker a better story to negotiate with carriers.
Cyber risk cannot be solved by buying a policy alone; weak controls like missing multi-factor authentication can leave the buyer exposed even if insurance is in place.
Annual insurance reviews matter because risk changes over time and stale policies can quietly drift into underinsurance, overpayment, or even misrepresentation.
Repricing or renewal errors can create major EBITDA distortions in diligence, so buyers should verify the assumptions behind every policy line item.
Specialty or unusual businesses still have insurance markets, but the broker’s value is in finding the right carrier appetite and telling the risk story well.
A diligence approach that compares the business’s current insurance program and risk controls against what the operation actually needs, then identifies uncovered exposures and misclassified policies.
When to use: Use it when evaluating an acquisition target’s insurance, operations, and control environment before close.
80% of the time, insurance is handled through a non-fee arrangement where the broker is compensated by carrier premiums.
Tom describes the most common compensation model for acquisition-related insurance work.
Claims activity over the last five years has made cyber insurance one of the fastest-rising risk categories.
He cites the surge in cyber claims as a reason buyers should treat cyber coverage as a priority.
Insurance carriers can move pricing by 20% to 30% when a buyer has a strong risk story and controls in place.
He explains how underwriting standards can reward proactive buyers.
If payroll is mistakenly used instead of sales for a general liability rating basis, the premium can triple once corrected.
He gives a real example of a seller’s mistaken rating input causing a large premium jump.
Workers' compensation class-code mistakes can increase cost by 3x to 10x per employee.
He warns that misclassifying employees’ job duties can materially distort premiums.
Reps and warranties insurance typically shows up on deals of about $50 million and up.
He contrasts larger transactions with smaller ones where escrow and seller notes are more common.
RWI deductibles on those larger deals can be around $250,000.
He notes that minimum premiums and deductibles make RWI uneconomic on smaller acquisitions.
Businesses with more than 50 employees or above about $10 million in size usually need a more sophisticated insurance advisor.
He says scale starts to matter more as operations and coverage complexity increase.
Request loss runs from the seller’s current carrier before closing.
Why: They reveal the real claims history and help the buyer identify hidden exposure or recurring problems.
Review insurance annually instead of letting policies auto-renew blindly.
Why: Risk changes over time, and stale assumptions can create underinsurance or incorrect pricing.
Verify the exact rating basis for every policy, especially general liability and workers' comp.
Why: Wrong inputs like payroll instead of sales or incorrect class codes can massively inflate or distort premiums.
Put cyber controls such as multi-factor authentication in place before assuming a cyber policy will protect you.
Why: Insurance does not substitute for basic controls, and weak security can leave the business exposed.
Work with a broker who understands your industry niche and can access the right carrier markets.
Why: Specialty risks need a broker who can translate the business model into underwriting language carriers will accept.
Treat insurance diligence as part of the deal team, alongside legal and financial diligence.
Why: The goal is to prevent post-close surprises that can trigger disputes with the seller or escrow claims.
Choose a broker whose incentives and philosophy align with long-term risk management, not just premium growth.
Why: A partner mindset reduces the chance that the broker simply pushes higher-priced coverage without improving protection.
Tom described a seller whose policy was priced on payroll rather than sales. Once corrected, the premium tripled, and the mistake also affected EBITDA calculations tied to the deal.
Lesson: Buyers should verify the rating basis early because a simple classification error can create a large post-diligence cost shock.
He gave the example of an employee who split time between clerical work and a riskier task. The business was being rated as if the lower-risk split applied, but the riskier class code would govern if the hazardous work occurred at all.
Lesson: Class-code accuracy matters because even partial exposure to riskier duties can push the whole employee into a much more expensive category.