When to Use Representations & Warranties (R&W) Insurance
Representations and warranties insurance, once seen mainly in large-scale deals, has now become a standard negotiation tool even in mid-market transactions.
The core function of R&W insurance
This insurance has the insurer, rather than the seller, cover the loss that can arise from a breach of the representations and warranties the seller gave in the purchase agreement.
This structure substantially reduces the seller's post-deal personal or corporate risk exposure, while giving the buyer a real, financially strong counterparty for indemnification.
Buy-side versus sell-side policies
A buy-side policy is far more common and is purchased directly by the buyer; this removes the buyer's need to sue the seller directly and generally preserves the seller-buyer relationship.
A sell-side policy is less common and lets the seller insure their own liability, but it doesn't give the buyer direct access to indemnification.
What the insurance doesn't cover
R&W insurance typically excludes known issues (risks the seller disclosed before the deal), certain tax matters, or environmental liabilities; the scope of these exclusions is the most critical part of the policy negotiation.
The buyer should consider negotiating a separate specific indemnity for excluded areas.
Assessing cost and timing
The cost of R&W insurance typically ranges around a few percent of the policy limit and varies by deal size, sector, and diligence quality.
Starting the insurance process in parallel with the deal timeline is critical; the insurer's own diligence review typically takes a few weeks and should be planned early so it doesn't delay closing.
Its effect on negotiation dynamics
When R&W insurance is used, the seller's warranty liability cap can be significantly reduced, sometimes to a nominal level, since the main indemnification burden shifts to the insurer; this generally speeds up negotiation.
This tool can also be used strategically in competitive auction processes to make the seller's offer more attractive relative to other buyers.
M&A Transaction CapabilityThe construction of the process decides the outcome as much as the price. We build the process in your favour and see the surprises before they reach the table.
Learn moreFrequently asked questions
Is R&W insurance possible on every deal?
No; insurers typically require a certain minimum deal size and a thorough diligence report.
Who pays the insurance premium?
Usually the buyer, but in some negotiations the cost can be split between the parties or built into the price.
Does the insurance process delay the deal timeline?
Generally no if started early; the insurer's review can typically run in parallel with the existing diligence process.
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