What Is Warranty and Indemnity (W&I) Insurance?
Warranty and indemnity (W&I) insurance is a specialist insurance policy used in mergers and acquisitions (M&A) to protect buyers and sellers from financial losses due to breaches of warranties or indemnities in a sale agreement.
This insurance helps reduce risk, facilitate negotiations, and protect both parties from unforeseen liabilities after a transaction is completed.
Who Needs W&I Insurance?
- Buyers of businesses – Protects against undisclosed liabilities or legal claims.
- Sellers of businesses – Reduces the risk of future legal disputes and financial claims.
- Private equity investors – Provides certainty over financial risks in M&A deals.
- Corporate M&A teams – Ensures smoother negotiations and deal execution.
Breaches of warranties – Covers financial losses if the seller’s warranties about the business are inaccurate.
Indemnity claims – Protects against unexpected costs from tax liabilities, employee disputes, or environmental issues.
Undisclosed liabilities – Covers legal and regulatory risks that may arise post-transaction.
Fraud and misrepresentation – Some policies include coverage for misstatements made during due diligence.
Types of W&I Insurance Policies
1. Buyer-Side W&I Insurance
- Protects the buyer from financial losses due to inaccurate warranties.
- Covers risks if the seller cannot pay for claims after the deal.
- Common in private equity deals where sellers want a clean exit.
2. Seller-Side W&I Insurance
- Protects sellers from legal claims by buyers after completion.
- Ensures sellers receive full sale proceeds without funds held in escrow.
- Useful for business owners looking for a final exit strategy.
Benefits of W&I Insurance
✅ Reduces Risk for Buyers – Protects against financial losses due to undisclosed issues.
✅ Gives Sellers a Clean Exit – Minimises post-sale liabilities and reduces escrow requirements.
✅ Speeds Up M&A Transactions – Simplifies negotiations by covering warranty risks.
✅ Enhances Deal Certainty – Provides confidence to investors, lenders, and stakeholders.
How Much Does W&I Insurance Cost?
The cost depends on:
- Deal size – Larger transactions have higher premiums.
- Industry risk level – Higher-risk sectors (e.g., energy, financial services) face higher costs.
- Coverage limits – Typical policies cover 10-30% of the transaction value.
Estimated Costs
- Small business deals (£5M – £20M): £50,000 – £150,000
- Mid-sized M&A deals (£20M – £100M): £150,000 – £500,000
- Large corporate transactions (£100M+): £500,000+
Best Warranty and Indemnity Insurance Providers in the UK
- AIG – Leading W&I provider for corporate M&A deals.
- Chubb – Offers policies for both buyers and sellers.
- Zurich – Specialises in private equity and real estate transactions.
- Lloyd’s of London – Customised W&I insurance for high-value deals.
How Fraser Bond Can Help
Fraser Bond works with top insurers to:
- Find tailored W&I insurance for buyers and sellers.
- Compare policies from leading providers to secure the best deal.
- Ensure legal and financial risk protection for M&A transactions.
Final Thoughts
Warranty and indemnity insurance is a critical risk management tool in mergers and acquisitions. Whether you’re a buyer seeking protection from undisclosed liabilities or a seller looking for a clean exit, W&I insurance ensures financial security and smoother deal completion.
For expert advice on securing the best W&I insurance, contact Fraser Bond today.
