The merger or acquisition of a Residential Care Facility for the Elderly (RCFE) can benefit all parties. The entity taking over the RCFE clearly sees something good in it, and the proven success of the facility benefits their portfolio. For the party selling their RCFE or merging under a new umbrella, the transition usually comes with the dual benefit of monetary gain and lessened responsibility.
At least, that’s the case if both parties protect themselves with adequate insurance coverage. If they don’t, a single incident could significantly eat into their profits.
Sometimes, the current owner can transfer their existing coverage to the new party taking over. But that’s not always the best path forward, so let’s take a closer look.
When Transferring Policies Makes Sense
First things first, in some mergers and acquisitions (M&As), the new owner doesn’t have the option to take over the existing policy. That policy is a contract entered into by the current owner and the insurance provider. Even if the current owner is game to transfer coverage, the insurer needs to agree to it, too.
As a result, it’s best practice early in the M&A process to start talking with any involved insurers. This way, the new controlling entity can find out if transferring policies is even an option.
If it is, transferring insurance policies during an RCFE M&A scenario can make life easier for everyone. The new owner doesn’t have to hunt down insurance options or figure out the details of the coverages they need — the current owner has already done that work for them. And with the policy transferred, the current owner gets a seamless way to cancel coverage and stop paying premiums.
Still, the entity acquiring the RCFE or merging it with existing facilities should do due diligence. Carefully reviewing each policy helps to make sure it offers sufficient protections for their new undertaking. Working with an experienced RCFE insurance agent goes a long way here.
When the New Owner Should Get Their Own Coverage
Before transferring an existing RCFE insurance policy to themselves, the entity taking over the RCFE needs to evaluate if that’s the best option. While it might seem easier than finding a new policy, it can come with some serious drawbacks.
For starters, they should review the claims history on the policy. If it’s extensive, taking over the coverage could mean paying more.
Additionally, what the previous owner deemed sufficient may not meet the current needs of the facility, especially if it’s grown. Reviewing policy details helps to identify any gaps in coverage. These need to be rectified, either through adjusting the existing coverage upon transfer or by securing new coverage.
Even if the previous owner had few problems and good coverage, another insurance provider may be able to issue the same level of coverage for less money, too. Soliciting quotes from at least a couple of other providers helps the new owner get cost-effective protection in place. Again, an RCFE insurance agent can help here.
A Consideration for the Sellers with Claims-Made Coverage
If you’re the party getting acquired or merging with another entity, the insurance piece might seem fairly simple. If you have occurrence coverage, which protects you based on when the incident occurred, it is. But if you have claims-made liability coverage, you’re only protected if the policy is active when a claim is made. As a result, if someone brings a claim forward after your M&A scenario gets finalized and you cancel coverage, you could be exposed.
Look into securing tail coverage, which was designed for precisely this scenario.
Whichever side of the RCFE M&A you’re on, our team can help. For assistance reviewing existing policies and deciding if it’s best to transfer or secure new coverage, we’re here. We can also help sellers get the tail coverage they need to safeguard themselves long-term. Contact our team at InsureMyRCFE at (805) 413-5668 for insurance support during your merger or acquisition.
