In Germany, due diligence insurance operates similarly to how it works in other countries, such as the United States or the United Kingdom. However, there might be some specific considerations due to local regulations and market practices.

Here’s how due diligence insurance typically works in Germany:

1. Coverage Scope: The insurance policy covers losses resulting from breaches of representations and warranties made by the seller in the purchase agreement. These representations and warranties may include aspects such as financial statements, tax matters, legal compliance, intellectual property, environmental issues, and more.
2. Underwriting Process: Before issuing a policy, the insurer conducts a thorough underwriting process. This involves evaluating the risks associated with the transaction, including the quality of the due diligence conducted by the buyer, the financial health of the target company, and the nature of the representations and warranties being made by the seller.
3. Policy Terms and Conditions: The policy sets out the specific terms and conditions of coverage, including the coverage limit, deductible (also known as the “retention” or “excess”), coverage period, exclusions, and any other relevant provisions. The premium is usually based on factors such as the deal size, industry, and perceived risk.
4. Claims Process: If the buyer discovers a breach of a representation or warranty after the deal closes, they can file a claim with the insurer within the specified coverage period. The insurer will then investigate the claim and determine whether it is covered under the policy. If the claim is valid, the insurer will indemnify the buyer for the covered losses, up to the policy limit, minus any applicable deductible.
5. Interaction with Purchase Agreement: Due diligence insurance supplements the indemnification provisions in the purchase agreement but does not replace them entirely. Typically, the buyer will still have recourse against the seller for breaches that exceed the policy limit or fall outside the scope of coverage.
6. Legal and Regulatory Considerations: In Germany, due diligence insurance is subject to local laws and regulations governing insurance contracts. Both buyers and sellers need to work with legal advisors familiar with German law to ensure compliance and address any specific legal requirements or nuances.

Overall, due diligence insurance can be a valuable tool in M&A transactions in Germany, providing additional protection and mitigating risks for both buyers and sellers.

How much does due diligence insurance cost in Germany?

The monthly premium of Due Diligence Insurance can vary depending on several factors:

1. Transaction Value: The value of the transaction plays a crucial role in determining the insurance cost. Typically, the premium ranges between 1% and 3% of the total transaction value.
2. Risk Profile of the Target Company: The premium is also influenced by the risk profile of the target company. The higher the risk, the higher the premium.
3. Industry-Specific Risks: Premiums may vary by industry, as certain sectors are associated with higher or lower risks.
4. Chosen Coverage Amount: The amount of coverage to be made available in the event of a breach of representations or warranties affects the premium.
5. Scope of Coverage: An extended scope of coverage may result in higher premiums.
6. Seller’s Reputation: An established, trustworthy seller may lead to lower premiums as the risk of hidden problems is lower.

The exact costs can only be determined after a careful analysis of all relevant factors by the insurer. It is advisable to consult with an insurance broker  to get an accurate estimate.