The adoption of warranty and indemnity insurance (W&I) reached record levels in the first half of 2024, according to a market study by transactional risk insurance broker HWF Partners.
The study revealed that 1,540 W&I policies were issued during the six-month period, reflecting the growing integration of this insurance product into mergers and acquisitions (M&A) transactions across Europe.
W&I insurance is designed to cover losses a buyer is entitled to claim against a seller for unknown and unforeseen risks that materialise post-transaction. Examples include undisclosed tax liabilities, unreported contractual obligations, or title deficiencies in real estate deals.
HWF’s market claims study, conducted with data from 22 European insurers, analysed 15,080 W&I policies issued since January 2016. The report provides detailed claims data for the first time, offering insights into policy utilisation and payouts in the European market.
Over the review period, insurers received claims on 11.64% of W&I policies, with the likelihood of claims increasing for larger transactions. Deals exceeding £1 billion in enterprise value recorded an 18.58% claims notification rate.
Ultimately, 4.32% of policies resulted in paid claims during the review period. According to HWF, 25% of successful claims were settled within six months, while 72.56% were resolved within 18 months. This represents a notable contrast to uninsured transactions, where claims against sellers typically involve longer settlement timelines.
The report also examined subrogation, the process through which insurers pursue sellers for recovery when fraud is involved. Subrogation occurred in just 1.85% of claims that resulted in payouts, suggesting limited instances of insurers seeking to recover payments from sellers.
David Wall (pictured above), managing director at HWF Partners and author of the study, highlighted the significance of the findings. Wall noted that claims have increased substantially over the past year, with HWF facilitating major settlements for clients.
“Policies frequently cost less than 1% of the maximum payout limit, and the recovery rate is material for something designed for unpredictable circumstances, with claims paid out on over 4% of policies. That flow of capital back to insured parties isn’t showing any sign of slowing down,” he said.
Wall emphasised the importance of transparency in building confidence in W&I insurance, explaining that the objective claims data provided by the study aims to enhance trust among clients engaging in M&A transactions.
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