Role of the Insurance Broker in Your M&A Deal

At the end of the day, successful mergers and acquisitions are about bringing people together… coming to an agreement and moving forward to everybody’s satisfaction.

There are a lot of people involved. The Buyer and Seller, of course, as well as their attorneys and bankers. Those who want a smooth negotiation and the ability to transfer any risk in the sale to a third party, include Rep and Warranty (R&W) insurance in the transaction.

That means bringing an insurance broker experienced in R&W into the “circle.”

In most cases, the Buyer is the R&W policyholder, and depending on the deal, the Seller is responsible for part or all of the premium costs.  The broker will become an important partner in the process of securing insurance as they have a fiduciary duty to provide the best R&W terms to the policyholder, while balancing the need to deliver a budget-appropriate solution.

Why You Need to Call a Broker

If you’ve heard of R&W insurance before you may already understand why it’s so effective. If this is the first time, and you’re intrigued by the benefits I mentioned already, you might be asking the natural question:

Why not go at it alone and contact the insurance company directly to get my Rep and Warranty policy?

Well, this isn’t like car insurance where you can call an 800 number and get coverage within the hour with no car inspection.

R&W is much stricter as far as eligibility standards, due diligence, documentation, and other requirements, and you need an expert on your side to walk you through the process.

Would you buy a server farm without consulting an IT professional?

So, you certainly shouldn’t take on R&W coverage where costs begin in the low six-figure range, that include deductibles at 1% – 2% of transaction value – and offers very specific coverage for representations and warranties outlined in a purchase and sale agreement – without an expert on your side.

Do You Speak Rep and Warranty?

One of the main reasons a broker is essential is that they are fluent in the language of R&W insurance for mergers and acquisitions. There is no “catch-all” R&W coverage; there are actually a variety of terms, structures, and formats.

A broker can explain the differences, interpret how they’ll impact your policy and coverage, and communicate all of it to you as a non-insurance professional.

You might be very good at what you do, but this is too much to take on while you have a major business deal being negotiated. Let someone who’s an expert at what they do handle this part.

If you were thinking you could let your attorney handle this… well, that depends on what you mean.

If your attorney will attempt to figure out the details of all the different R&W policies available – on top of doing their other work on the deal – no way.

But if they plan to contact an experienced insurance broker – go for it.

Having a broker on board allows the attorneys involved to focus on what they’re doing. A broker brings up-to-date knowledge on insurance and advises the parties involved.


An insurance broker works for you. They are not employed by and of the many insurance companies now offering R&W, and not compelled to push a certain product.

The insurance broker you hire to secure your R&W coverage will be independent of the insurance companies.

So they can examine a variety of vehicles to find the one that best fits your particular deal. Importantly, they can also balance cost and performance.

“I Know a Guy”

I mentioned at the beginning that a successful merger or acquisition is all about bringing people together – that means relationships and communication.

In the case of an insurance broker, one worth his salt has contacts among the Underwriters that work for the insurers. The Underwriters are the ones who determine the cost of the policy, what will be excluded from the policy, and… whether they’ll issue the policy at all.

A professional broker who knows Underwriters, can secure better quality responses – exposures can be limited and eliminated in your coverage. Basically, you can get a better quality policy.

These broker/Underwriter relationships are key. It’s not the number of deals a broker does, it’s who they know – that should be on top of your mind as you search for your own broker.


A qualified broker also excels in execution – making sure all the processes are done in the timeframe that’s right for the deal. This benefit brings together many of their qualities:

  • In-depth knowledge of R&W insurance to make sure you get the appropriate coverage.
  • Contacts with insurance company Underwriters to get the best terms possible, balancing coverages and cost.
  • Experience with the application and underwriting process to make sure you don’t make a mistake that creates delays.

Certainly, working with a broker will get you a R&W policy much faster than if you tried to puzzle through the process on your own.

When to Bring in a Broker on an M&A Deal

The ideal time to bring in a broker for Rep and Warranty coverage is during the Letter of Intent stage of the deal.

In broad strokes, the Buyer sends a letter to the Seller saying, “We want to pay you $250 million for your company. If we commence this process it would look like this. There will be an indemnity clause where we will use Rep and Warranty insurance. The Rep and Warranty coverage will be secured by Rubicon Insurance Brokers, LLC. This insurance and their services will cost this much.”

By building Rep and Warranty insurance and the specific broker into the Letter of Intent, you’ll kick things off with a smoother negotiation, for one. It’s also one less expense item to think about down the road.

Trying to bring up R&W later on is like remodeling a house and then all of a sudden saying, “We need new sconces,” and having to shell out more cash out of the blue.

If Rep and Warranty is in the Letter of Intent, it doesn’t become an unwelcome or surprise expense. Besides, the worst time to bring in a broker is when there’s a crisis and disagreements have cropped up among the parties in the deal.

In that case, it can be more difficult for an insurance broker to put together a package that Buyer and Seller can agree on (they’re not agreeing on much of anything) – even if it is beneficial and makes sense for both parties.

Broker’s Most Important Role Comes AFTER Closing

The most important role played by Brokers comes when a Claim for a breach of the Seller Reps is reported.  Experienced Brokers understand the requirements of the insurer to get the information necessary to evaluate the loss before they cut a check.

At the outset of a Claim, Brokers facilitate a “meeting of the minds” between the policyholder and the insurer’s claims professionals to set the tone of how information is shared between the parties.

Anxious policyholders are unaware of the amount and purpose of information requests coming from insurers. They want their loss paid.  Brokers can smooth and, in many cases, accelerate the transfer of information between the parties so the insurers can get to a “yes” and issue payment.

It is the initial tone-setting by Brokers that makes the difference between a favorable and an unnecessarily disastrous claim experience. In the words of one M&A attorney, “the difference a professional Broker makes is night and day.”

Contact a Broker ASAP

It’s important to note that an insurance broker, even one specializing in Rep and Warranty, is not a business consultant, so they can’t help negotiate a deal or conduct due diligence.

Like banks and law firms, insurance is a highly regulated industry. You’re not asking your attorney to put together your financing, so you can’t ask a broker to step out of their assigned role.

That being said, a broker might also be involved in talking to a reluctant Buyer or Seller who doesn’t understand Rep and Warranty or its benefits.

It’s another example of how brokers are essential conduits – and translators – between the insurance companies and non-insurance parties involved in a merger or acquisition.

If you need R&W insurance for your next merger or acquisition, it’s clear you need a broker in your corner to help you secure the most effective policy with maximum protection for you. For a brief and candid discussion to determine the best Rep and Warranty coverage for your deal, contact Patrick Stroth at (650) 931-2321 or


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