Lockton’s experienced transactional risks team specialise in sourcing effective warranty and indemnity cover and risk solutions to protect your business throughout the transaction process. We work for buyers and sellers in corporate transactions, as well as for the firms that advise them. Harnessing decades of experience and strong insurer relationships, we’ll make sure you get the cover you need to make your deal happen, and to protect your interests in the future.
Protecting your interests, today and tomorrow
Lockton’s experienced transactional risks team specialise in sourcing effective warranty and indemnity cover and risk solutions to protect your business throughout the transaction process.
Warranty and indemnity insurance acts to indemnify parties involved in a transaction against financial losses that could arise out of a breach of warranty or indemnity in the purchase agreement. Sellers use it to limit their ongoing liabilities and prevent sale proceeds being held up in escrows, allowing them to exit deals cleanly. Buyers use it to make their bids more attractive to sellers and to protect the value of their investment once deals are done.
We work for buyers and sellers in corporate transactions, as well as for the firms that advise them. Harnessing decades of experience and strong insurer relationships, we’ll make sure you get the cover you need to make your deal happen, and to protect your interests in the future.
What we bring to your business
Back-to-back cover for warranty liabilities – transferring the risks to the insurer. We also source cover known risks identified in due diligence including tax, legal and pension contingencies
Specialist transactional risk insurance knowledge from our global team of corporate lawyers, underwriters and brokers
Scrutiny and detailed analysis of your deal to help you get a better understanding of the risks you face
Advice on how best to structure your agreement to make it more acceptable to insurers
A creative approach to plugging any gaps in coverage, identifying complex risks and helping you access even unconventional insurance markets
A broader perspective that looks past the deal itself, helping you understand your ongoing operational risks and the full spectrum of your corporate risk
Cover for any known liabilities, as well as contingent risk insurance
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We do more than just identify risks and help you insure them, we work alongside you to make your deal happen the way you want it to.
Warranty and Indemnity Insurance FAQs
What is transactional risk insurance?
Transactional risk insurance works to protect both buyers and sellers involved in mergers and acquisitions (M&As). It allows organisations to transfer many of their risks to an insurance provider, and away from their balance sheet. Typically, transactional risk insurance encompasses warranty and indemnity insurance (W&I), tax insurance, contingent insurance, as well as due diligence and risk solutions to protect a business throughout the M&A transactions process.
What is W&I insurance?
Warranty and indemnity insurance (W&I) covers the unknown risks in an M&A deal – protecting buyers and sellers against financial losses.
What does it cover? A W&I policy will cover the insured for:
Breach of warranties
A claim under a tax indemnity
A claim under a general indemnity for breach of warranty
What does it not cover? The policy will not however cover an organisation for losses arising from: General exclusions
Known risks / issues known to the buyer
Disclosed matters – including UK/Europe general disclosure (data room, DD reports, specific disclosures) and US disclosure (specific disclosure schedules)
Purchase price adjustments (e.g., leakage/completion accounts)
Anti-bribery and corruption (depending on jurisdiction)
Ongoing construction matters
Professional negligence/errors and omissions
High risk areas where other lines of insurance would be more appropriate for e.g., environmental, and cyber
General tax exclusions
Secondary tax liabilities
Valuation of tax assets
How is the risk/policy premium calculated?
The risk premium on a transaction is normally calculated at 0.6% to 2% of policy limit dependant on size, jurisdiction and sector of the transaction.
How long is a typical policy period for?
A standard policy period in the insurance market can last between two and three years for general warranties, and up to seven years for fundamental and tax warranties.
How often are W&I insurance claims paid out?
Claims are always paid out if they meet the conditions for constituting a valid claim. Among other things the following are preliminary conditions that must be met to constitute a valid claim:
Is the claim in line with the W&I Policy terms? i.e. the notification ought to be made within the policy period
Confirm that the claim does not fall within any possible general exclusions or specific exclusions that had been agreed upon
Make sure that the breach was not disclosed against in either the disclosure letter, the data room or the seller / buyer DD reports.
However, many policies are subject to arbitration clauses and are subject to confidential terms and so results are not often made public.
What are the most common types of claims notifications?
In our experience, the most common claims we receive in Europe are tax, financial statements, litigation, permits, licenses, consents, material contracts and compliance with laws.
We particularly see tax claims in the technology, media and telecommunications (TMT) sectors, where fast growing businesses have failed to keep up with the tax regimes.
What makes you choose an insurer over another?
When choosing an insurer, we take 3 key things into consideration: