“We’re getting significantly more demand, but the business we’re writing is growing at the same rate, so it’s consistent with expectations,” he said. “A new trend is that claims are coming fast. It was that if you wrote a policy in 2010, you wouldn’t see a claim on that policy as soon as possible until 2012. Now that claim is coming in the first 12 months of writing the policy.”
According to Liberty GTS’s 2021 M&A Claims Briefing, 57% of claims were notified in the first 12 months of the policy in 2020, a significant increase over 48% of claims for the same period in 2019. Bamford noted that some people may infer from the statistics that underwriters are failing to notice obvious damage, so the number of initial claim notices has increased, but he argued that this is not the case.
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“What’s happening is that buyers are becoming more sophisticated and understanding how to make claims faster. When they acquire a business they are better able to identify problems in a business – with the knowledge that they have an insurance policy that has a fixed term, “Bamford said. Insurance business.
“I think it’s probably a good thing for our industry because it helps actuators quickly understand what the loss position is in a given underwriting year. Previously, you would have to wait a few years for a claim and probably a few more years before resolving that claim, so you may not really know where you were four or five years after you wrote the policy. Now you are coming to that position much faster. Within 24 months, you’ll know what that underwriting year looks like from a performance standpoint.
The Liberty GTS 2021 M&A Claims Briefing also identifies the most common causes of M&A insurance claims worldwide.
One-third of pre-requisite notices in the Europe-Asia-Pacific region found tax-related issues, but actual large tax losses are rare. Bamford described a global trend of “more aggressive tax authorities” who are having to recover money due to the economic downturn caused by the Kovid-1 pandemic epidemic.
“We have seen a change in the attitude of the tax authorities that people need to follow more, and people are more concerned with their tax management,” he added. “[Connected to that]People are nervous because there has been an improvement in the sale of tax insurance products. This also means that there are more demand notices in tax-related warranties, compensation and representation books. This does not mean that all of them will be paid the claim, but of course, the authorities are investigating further, which leads to more notifications.
According to the Liberty GTS 2021 M&A Claims Briefing, accounting and financial problems account for 41% of claims of “high” severity, with many claims of stock control, or revenue recognition problems. On the stock and inventory issue, Bamford again pointed to the “direct relationship” with Covid-1 and lockdowns around the world, which made it more difficult for people to check stocks and inventory, so they speculated that they were more prone to errors.
Bamford added, “This is also true of revenue recognition issues and accounting irregularities,” which includes project-based work. “People are probably applying a historic historical approach to projects, when in fact it is not appropriate to look at the current state of work on a given project. And again, because people have been unable to travel – perhaps because they have been shut down because of covid – they have been unable to go to factories and ask questions, and so they are speculating about projects that are not accurate – and that are leading to demands. ”
According to Liberty GTS, claims regarding cyber and failed IT projects are also on the rise, reflecting the critical importance of digital infrastructure for all types of businesses today. Bamford explains: “Businesses are becoming more dependent on IT solutions, so when people are buying these businesses, they’re working hard to find out exactly what was in the company’s IT infrastructure sales document. And often, [it doesn’t]. ”
Finally, the insurer has also identified a number of “high” intensity claims involving ‘founder’ sales, some of which involve suspected fraud, particularly in relation to the revenue laundering of management.
Bamford commented, “We all now agree as a marketplace that we have suffered more from ‘founder’ sellers rather than institutional sellers.” “With a‘ founding ’seller, you have a person or family that is making cash; Transactions change the lives of those people.
“If the business is not performing perfectly perfectly, it is not that they are always cheating – sometimes they are – but sometimes‘ founder ’vendors look at their business through pink glasses. Perhaps they are portraying the business in an optimistic way, or they are not taking a prudent approach in recording their accounts and provisions because they know they are going to get a big payday. So, we see a lot more loss activity in accounts where an ‘founder’ is a seller or the founder is part of a senior management team. “