The path to streamlining your insurance acquisition due diligence

Don’t let insurance challenges get in the way of getting a deal done.

Due diligence is a comprehensive, complex, and critical stage in any commercial real estate acquisition. You don’t want to leave any stone unturned. It’s important to have as much time as possible to review your documents and look for any red flags with insurance considerations.

The four-point checklist below outlines the key documents and records needed for a complete due diligence on a prospective property acquisition when it comes to your insurance.

When Should the Due Diligence Process Start?

The sooner the better to reach out to your insurance broker. We suggest at least 90 days prior to acquisition.

In many transactions, we urge real estate owners to incorporate this checklist into the sale contract. We also require that the specified due diligence period does not commence until the seller produces the last of each of these deliverables. Simply put, when you’re the potential buyer of a property, you deserve to have all the necessary documentation in your hands before you start the intensive due diligence process.

Due Diligence Checklist for Acquisitions:

1. Copy of existing insurance policies and certificates to ensure compliance with lender requirements along with tenant compliance
   • Why is this needed: This will provide you a baseline for your insurance costs. If for example, a property is now in a flood zone the lender will require NFIP flood insurance and/or excess flood limits, increasing costs.
2. Loss runs illustrating any pending claims for the past 5 years
   • Why is this needed: Insurance carriers will require currently valued loss runs from the seller prior to providing pricing and/or adding to the portfolio. This can affect your master program pricing or if you need to have this property on a stand-alone basis.
3. Environmental review of Geotech reports or Phase I or II
   • Why is this needed: Environmental conditions discovered in a Phase I or II report can result in the need to obtain pollution liability insurance, adding cost.
4. Lender Insurance Requirements
   • Why is this needed: To ensure you are complying the necessary requirements such as excess limits, deductibles, and specific policy forms.

The insurance industry is experiencing a hard market which means initial insurance premiums will often increase prior to closing. It also means that the cost of higher excess liability limits and/or low property deductibles can add significant costs to your deal. One way to combat the hardening market is to have a sound risk management program with cost saving strategies in place.

If you have questions about what a streamlined real estate insurance due diligence process looks like, contact MMA today.