A look at warranty and indemnity insurance (With Angus Marshall)

Warranty and Indemnity Insurance

Warranty and Indemnity Insurance (W&I insurance) is a unique type of insurance that is commonly used in large M&A transactions. It works by providing coverage for unknown risks and misrepresentations in a company that is being sold. The buyer of the business typically purchases the insurance policy, which allows them to recover damages if any warranties or representations made by the seller turn out to be incorrect. W&I insurance has become popular, especially in private equity transactions, as it allows sellers to provide comprehensive warranties without the need for large escrow amounts. The insurance policy typically has exclusions, such as issues that are already known to the buyer, transfer pricing, and certain tax liabilities. The underwriting process for W&I insurance involves a deep understanding of the risks involved in the business and assessing the diligence conducted by the buyer. While W&I insurance has traditionally been used in larger transactions, there is now a growing market for W&I insurance in SME transactions.