Risk and insurance due diligence: Improving commercial decision-making throughout the M&A lifecycle

Xianwei Lee Jamie Wan Zhong Xian Lam

Insights

5 minutes

04 November 2026

Due diligence sits at the heart of every M&A transaction. Financial, legal, tax, commercial and technical due diligence help buyers validate value, identify liabilities and assess risk, providing the foundation for negotiating transaction terms, securing investment approval and planning for integration.

Yet one workstream may be introduced too late, or overlooked altogether: Risk and Insurance Due Diligence (IDD).

Traditional diligence answers many important questions, but not all the commercial questions that determine what ownership will look like after completion from a risk and insurance management perspective.

  • What will it cost to insure the business on a standalone basis, after an M&A transaction? 
  • Will insurance arrangements survive a change of control? 
  • Do historical claims indicate isolated incidents or recurring operational weaknesses?
  • Will the business be ready to operate seamlessly on day one? 
  • How do existing coverage arrangements compare with the business’ risk profile post-acquisition? 

These are commercial questions that can influence valuation, transaction negotiations, integration planning and execution.

Some sellers are commissioning IDD before launching a sale process to strengthen transaction readiness, reduce execution risk and minimise unexpected diligence findings. It helps sellers to present a well-prepared business and address issues proactively, while buyers benefit from enhanced transparency and a more streamlined diligence process. It can be particularly valuable before commercial terms have been agreed, when buyers and sellers still have the opportunity to influence value, negotiate protections and resolve issues before signing.

Ultimately, IDD is not about producing another diligence report. It is about giving deal teams better information while there is still time to act on it. 

Jamie Wan
As the risk landscape evolves, Risk and Insurance Due Diligence in M&A transactions is evolving from a diagnostic exercise into a tool for risk optimisation, value protection and deal execution.
Jamie Wan
Jamie Wan, Head of Advisory & Portfolio Solutions, M&A Asia

Commercial questions traditional due diligence may not answer

Every diligence workstream answers a different commercial question. Financial, legal, tax, commercial and technical diligence each provide an important perspective on the transaction, but none is designed to answer every question that matters before signing.

Deal teams often also seek to understand the insurance-related risks of the company that they are acquiring, what those risks may cost after completion, whether existing insurance arrangements will support a seamless day one transition, and which issues may be addressed during the transaction process rather than remediated post-completion. These are commercial questions that can influence valuation, transaction negotiations, and integration planning. They are questions that traditional diligence was never intended to answer and where IDD may add value.

On the Buy-side: Four questions buyers commonly consider before signing

For buyers, the objective is not simply to understand what they are acquiring, but how risk, cost and operational responsibility will transfer after completion. The following four questions illustrate where risk and insurance due diligence may influence valuation, transaction negotiations, integration planning and the long-term cost of ownership.

Financial and legal due diligence identify known liabilities. The next question is whether those liabilities reflect isolated issues or symptoms of broader operational weaknesses that will continue after completion. Recurring claims, uninsured or underinsured operations, significant retained risk and historical claims trends often point to issues that are not immediately apparent from the financial statements or legal diligence alone.

None of these issues necessarily makes a business unattractive. However, they may indicate that the buyer will inherit risks requiring further diligence, remediation or post-completion investment. The key question is not whether these risks exist, but whether they have already been reflected in value, require additional Share Purchase Agreement (SPA) protection, or will ultimately affect the buyer’s expected return on investment.

The purchase price is only one component of the investment. Buyers also inherit the ongoing cost of risk, which can change significantly after completion, particularly where the target has relied on a parent's group insurance programme. A common issue is whether the business can secure insurance on a standalone basis, and at what cost. These costs may not be fully reflected in the financial model and may affect operating budgets, EBITDA assumptions and integration planning.

Many buyers consider whether the investment case already reflects the true cost of ownership or whether additional funding may be required after completion.
 

A change of control can affect insurance arrangements in ways that are not always identified during broader transaction planning. Policies may terminate, require insurer consent or no longer apply once ownership changes, particularly in standalone and carve-out transactions. Day one planning therefore often involves considering what insurance arrangements may be in place before completion, whether transitional arrangements are relevant and whether any gaps in cover could disrupt operations immediately after closing.

Many buyers seek to address these issues before completion, rather than allowing them to become operational problems on day one.
 

Risk and insurance issues often emerge late in a transaction, after commercial terms have largely been agreed. Historical claims, unresolved exposures, disclosure issues and matters affecting Warranty & Indemnity(W&I) underwriting can all lead to additional diligence, revised SPA negotiations or delays to signing. Identifying these issues earlier may give buyers more time to consider whether they are addressed through pricing, contractual protections or pre-completion remediation.

Ultimately, issues identified before signing can usually be priced, negotiated or remediated. Issues identified late in the process often become costly surprises.
 

On the Sell-side: Four questions sellers commonly consider before going to market

For sellers, the objective is not simply to identify risk, but to understand how buyers are likely to interpret that risk during diligence and address avoidable issues before they affect value, negotiating leverage or deal certainty. The following four questions illustrate where risk and insurance due diligence may improve sale readiness, reduce execution risk and help maintain competitive tension throughout a transaction.

Businesses naturally evolve through acquisitions, expansion into new markets and operational change. As a result, legacy risk issues, historical claims and insurance arrangements do not always reflect the business buyers expect to acquire.

The key question is not whether buyers will identify these issues, but whether management has the opportunity to discover, understand or address them first.

Not every issue uncovered during sale preparation requires a structural solution. Many can be addressed before launching a sale process through relatively straightforward remediation, improved documentation or clearer disclosure. Sellers that address these issues before launch may be better placed to shape the narrative, rather than responding to buyer concerns during due diligence.

Sellers typically weigh which issues to resolve before launch, which can be managed through clear disclosure and which may call for a more strategic response to preserve value and maintain buyer confidence.
 

Late-stage diligence findings frequently result in additional information requests, extended negotiations or changes to transaction documentation. Many of these issues can be anticipated before launch, allowing management to prepare the information buyers, lenders and W&I insurers are most likely to request.

Many sellers focus on maintaining transaction momentum by resolving avoidable diligence issues before exclusivity begins.
 

Buyers may view a company's approach to risk management as an indicator of operational maturity. Well-managed businesses generally understand their principal risks, maintain appropriate insurance arrangements and can clearly explain historical losses and claims when asked.

The objective is not to present a perfect business, but a well-managed and well-understood one that can withstand buyer scrutiny without creating unnecessary uncertainty.

Case study: How IDD changed the transaction

M&A article 4 case study

The situation: A private equity sponsor was acquiring a business that had historically operated as part of a larger multinational group. Financial, legal and tax due diligence confirmed the business was fundamentally sound and supported the investment case.

However, the business had never operated on a standalone basis. Its insurance arrangements formed part of the seller's global programme, with shared insurance arrangements, centralised claims management and group-wide cost allocations that would cease on completion.

Case study M&A article

The commercial challenge: The transaction team needed to understand what ownership would look like after completion. The business would need to establish its own insurance programme, absorb higher standalone insurance costs and implement new arrangements to ensure uninterrupted protection on day ne. The allocation of historical claims between the buyer and seller also required clarification before signing.

None of these issues changed the buyer's appetite for the acquisition. They did, however, change the commercial decisions that needed to be made before completion.

Case study M&A article

The outcome: The buyer updated its financial model to reflect the true cost of ownership, incorporated day one requirements into its integration planning, agreed transitional arrangements with the seller and negotiated appropriate contractual protections where required.

The purchase price did not change. The quality of the transaction did. By signing with a clearer understanding of the risks, costs and operational requirements that would transfer on completion, the buyer entered ownership with greater certainty and fewer surprises.

Case study M&A article

Case study: How IDD changed the transaction

The situation

A private equity sponsor was acquiring a business that had historically operated as part of a larger multinational group. Financial, legal and tax due diligence confirmed the business was fundamentally sound and supported the investment case.

However, the business had never operated on a standalone basis. Its insurance arrangements formed part of the seller's global programme, with shared insurance arrangements, centralised claims management and group-wide cost allocations that would cease on completion.

The commercial challenge

The transaction team needed to understand what ownership would look like after completion. The business would need to establish its own insurance programme, absorb higher standalone insurance costs and implement new arrangements to ensure uninterrupted protection on day ne. The allocation of historical claims between the buyer and seller also required clarification before signing.

None of these issues changed the buyer's appetite for the acquisition. They did, however, change the commercial decisions that needed to be made before completion.

The outcome

The buyer updated its financial model to reflect the true cost of ownership, incorporated day one requirements into its integration planning, agreed transitional arrangements with the seller and negotiated appropriate contractual protections where required.

The purchase price did not change. The quality of the transaction did. By signing with a clearer understanding of the risks, costs and operational requirements that would transfer on completion, the buyer entered ownership with greater certainty and fewer surprises.

Conclusion

Financial, legal and tax due diligence remain fundamental to every M&A transaction. However, understanding the business is only part of the equation. Buyers and sellers often also look at how risk may affect ownership after completion, influence negotiations and ultimately impact transaction value and execution.

The value of risk and insurance due diligence often lies in timing. It tends to be most effective when commissioned early enough to influence commercial decisions, rather than after key terms have already been agreed. For buyers, this is often alongside financial, tax and legal due diligence, rather than after SPA negotiations are substantially complete. For sellers, it often involves identifying issues before launching a sale process, rather than responding to them during due diligence.

Ultimately, successful transactions are not defined by how many risks are identified during due diligence, but by how effectively those risks are understood, managed and addressed before signing. Whether undertaken from a buyer's or seller's perspective, early risk and insurance due diligence can help reduce uncertainty, support informed decision-making and improve transaction outcomes for all parties involved.

Get in touch

We work with private equity sponsors, corporates and investors across Asia to deliver risk and insurance due diligence for buy-side acquisitions, sell-side exits and complex carve-out transactions. If you would like to discuss how IDD could support your next transaction, investment or portfolio strategy, please get in touch with our team.

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