M&A / Private Equity
What insurance diligence looks for in a roofing acquisition
Loss history, open claims and risk maturity become part of a much larger conversation.
For owners contemplating a future transaction, insurance performance is examined as an indicator of future operating cost and enterprise risk.
Key takeaways
- Diligence reviews loss development, open reserves, experience modification trend and contract obligations.
- Subcontractor documentation gaps become indemnity negotiations at closing.
- Risk-management maturity is read as a proxy for operational discipline.
- The work that improves diligence outcomes takes years, not weeks.
Roofing has attracted sustained investment interest, and with it a standard of insurance diligence that many privately held contractors encounter for the first time at the letter of intent stage.
Nothing in that review is exotic. It is the same information an underwriter examines, read for a different purpose.
What is examined
Reviewers are building a forward view of cost and of contingent exposure.
- Five years of loss runs, with attention to development rather than incurred totals
- Open claims, reserve adequacy and any matters in litigation
- Experience modification history and the claims driving it
- Subcontractor agreements, certificates and evidence of consistent verification
- Contractual obligations, warranty terms and indemnity accepted
- Safety program documentation and OSHA history
Where roofing companies are most often exposed
The recurring finding is documentation. Work performed well but recorded poorly is indistinguishable, in diligence, from work performed poorly.
Diligence does not reward what you did. It rewards what you can demonstrate you did.
Preparation is a multi-year exercise
Experience modification reflects three years of claims. Subcontractor files cannot be reconstructed retroactively. Owners who begin preparing in the year of a transaction are limited to explanation rather than improvement.
Roofers Specialty does not act as an investment banker, M&A advisor, law firm or accounting firm. Where appropriate, we make introductions to qualified professionals in those fields.
About the author
Wyatt Duncan
Roofers Specialty, a practice of The Duncan Group
Wyatt Duncan leads Roofers Specialty, the roofing contractor practice of The Duncan Group, an independent insurance brokerage and commercial risk consulting organization headquartered in Austin, Texas.