Warranty & Indemnity Insurance: a Quick Introduction

What is Warranty & Indemnity Insurance?

When buying or selling a business, the Sale & Purchase Agreement (SPA) includes warranties (statements about the business’s condition) and indemnities covering specific risks. If these statements turn out to be inaccurate, the financial consequences can be significant.

Warranty & Indemnity (W&I) Insurance transfers this risk from the buyer and seller to an insurer. Instead of negotiating lengthy indemnity clauses or holding back funds, W&I insurance provides peace of mind by covering losses arising from breaches of warranty or tax covenants. It’s now a standard tool in M&A transactions, offering a cleaner exit for sellers and greater certainty for buyers.

Why is Warranty & Indemnity Insurance important?

Warranty & indemnity insurance offers significant benefits to both buyers and sellers during a business transaction. By transferring the risk of warranty breaches or unforeseen liabilities from the transacting parties to the insurer, it greatly reduces the financial exposure for everyone involved.

It can help to accelerate negotiations, as it removes the need for protracted discussions over contentious warranty clauses. Sellers benefit from a cleaner exit, as they can receive and distribute sale proceeds with less consideration to holding back funds in consideration of future claims.

For buyers, the insurance provides enhanced protection and reassurance that any unknown issues uncovered after completion will not undermine their investment. Having robust W&I cover in place supports the agreed valuation, ensuring that multiples and overall deal economics remain unaffected even if problems emerge post-completion.

How Caunce O’Hara Insurance Brokers Can Help

Having been through transactions ourselves, we don’t just understand your insurance requirements but also the sheer amount of effort, diligence and hard work involved in every stage of the process. We appreciate the stress, uncertainty and emotional investment that come with buying or selling a business and the importance of having trusted advisors by your side. We’re committed to ensuring that your interests are protected every step of the way and you can rely on us for genuine understanding, practical guidance as well as a comprehensive insurance strategy, tailored to your transaction.

Here’s why clients choose us:

• Expertise across complex deals- We’ve advised on transactions from mid-market to large-scale acquisitions, tailoring W&I and SPA solutions to fit unique deal structures.
• One-stop shop- We are your single destination for all commercial insurance needs, offering comprehensive cover across a wide range of areas to ensure your business is fully protected.
• Market access- Our relationships with leading insurers mean competitive pricing and robust cover.
• Strategic guidance- We don’t just offer insurance. We offer due diligence, risk management, surveys and an insurance strategy to strengthen your position throughout the deal lifecycle.

More than just W&I cover

At Caunce O’Hara, due diligence isn’t just about arranging warranty & indemnity insurance. We go further by conducting a comprehensive review of your, or the target business’s, existing commercial insurance programme. This approach ensures that risks are properly identified and managed before, during, and after the transaction.

Why review existing insurance?

Highlight hidden exposures- A detailed review uncovers gaps in cover such as inadequate cyber liability, outdated limits, or missing specialist policies that could lead to costly surprises post-acquisition.

Assess risk appetite and management culture- The quality and scope of a company’s insurance programme often reflects its approach to risk management. A robust programme suggests a proactive stance, while weaker cover may indicate risk tolerance or underinvestment in protection. This insight helps buyers anticipate integration challenges and negotiate terms effectively.

Influence deal value and strategy- Insurance exposures can directly impact valuation. Identifying deficiencies early allows for price adjustments or securing additional cover before completion, protecting deal economics.

Ensure compliance and continuity- Verifying that policies comply with regulatory standards and remain in place post deal closure avoids legal complications and ensures uninterrupted protection.

Why Choose Us?

Our team combines M&A expertise with deep insurance knowledge to deliver actionable insights. We don’t just identify issues, we provide solutions, from restructuring programs to negotiating improved terms. This proactive approach ensures your acquisition is protected from day one.