In competitive M&A processes, buyers are increasingly relying on warranty and indemnity (W&I) insurance to protect against unknown risks and streamline negotiations with sellers. Once the preserve of private equity, buy-side W&I policies are now a standard feature of mid-market and growth transactions — offering deal certainty, cleaner exits for sellers, and faster execution.
What Buy-Side W&I Insurance Covers
W&I insurance transfers the financial risk of a breach of warranty or claim under a tax indemnity from the seller to the insurer. In a buy-side policy, the buyer is the insured party and claims are made directly against the insurer, not the seller.
Typically, this allows:
- Reduced escrow or retention requirements, freeing up deal proceeds for sellers.
- Comfort for investors where sellers are unwilling or unable to give a full suite of warranties (for example, founder exits or secondary buyouts).
- Clean exits, particularly in cross-border deals where enforcement risk can be a concern.
Scope and Limitations
W&I insurance usually mirrors the scope of the warranties and indemnities in the SPA. However, insurers will not cover everything. Exclusions often include, depending on the insurer:
- Known issues (identified in due diligence or disclosure);
- Forward-looking statements or projections; and
- Certain environmental, transfer pricing or pension liabilities.
The level of due diligence undertaken is critical. Insurers expect a robust diligence process — legal, financial and tax — and will exclude areas where diligence has been limited.
Practical Considerations for Buyers
- Start early. The insurance process should run in parallel with due diligence and SPA drafting. Late engagement can delay signing or limit coverage.
- Negotiate with insurers as you would with counterparties. Policy wording and exclusions can vary significantly.
- Understand your recovery process. Claims require strict compliance with notice and loss quantification provisions; buyers should ensure these align with the SPA.
- Manage the interplay with the seller. Sellers still provide the warranties, but their liability cap is often significantly limited or even reduced to £1 (a “nominal recourse” deal).
Cost and Market Trends
Premiums typically range from 0.9% to 1.5% of the insured limit, with a retention (deductible) of 0.5–1% of the purchase price (below which claims against the insurer cannot be made). For well-run processes, insurers are now offering:
- Broader synthetic warranty cover;
- Reduced underwriting timelines; and
- Streamlined policies for smaller transactions.
This reflects a maturing market where insurance is not just a risk mitigation tool but a deal enabler — giving buyers confidence to proceed quickly, and sellers the clean exit they demand.
Key Takeaway
For founders and investors, buy-side W&I insurance is no longer an afterthought. It’s a strategic tool that can help you win a competitive M&A process, assist in negotiations and preserve relationships with sellers.
