Following a soft market in early 2024, the Warranty and Indemnity Insurance market is bubbling under the surface, waiting to boil.
Warranty and Indemnity (W&I) insurance is a specialised product designed to protect parties involved in mergers and acquisitions (M&A) from financial losses that may arise from breaches of representations and warranties in the transaction agreement. By transferring certain risks to insurance providers, W&I insurance plays a critical role in providing security to buyers and sellers, facilitating smoother deal negotiations, and ultimately increasing confidence in M&A deals.
As the global M&A market continues to grow, the importance of W&I insurance has only increased. In recent years, this product has evolved to become more accessible, affordable, and tailored to the needs of specific sectors. Its flexibility has made it an essential tool for mitigating risks and ensuring deal certainty.
Market conditions for W&I insurance were best described as ‘soft’ during the early months of 2024, a continuing trend since the 2021 post-lockdown boom.
However, with easing economic conditions and lots of competitive insurance providers looking to make their mark, a stronger W&I insurance market is on the horizon.
As a product, W&I insurance has come a long way over the years. Where once it was a single layered, generic product that could be purchased from a number of brokers and insurance providers, it’s now becoming more personalised, with underwriters and carriers offering enhancements to the product.
“W&I Insurance as a product isn’t necessarily changing, it’s just becoming more sought after and is being taken out more often – so the biggest change is its popularity,” says James Fletcher, Co-Founder, Devonshire Underwriting.
“Over the last five years, premiums have lowered and policy coverage is now broader and more accessible. This is in large part due to the improved awareness of the product and the realisation of its importance, thanks largely to strong support from a sophisticated market of brokers, advisors and insurance providers, hence the growth in popularity and improved coverage.”
The decrease in premiums over the last five years has seen the average premium for a typical UK W&I deal drop from around 1.1% to 0.7%.
James added: “Deal dynamics in Q4 2024 will be very telling as to how markets will fare over 2025, there is plenty to be optimistic about should macro economic factors continue to improve.”
Direct to the decision makers
One key USP for Devonshire Underwriting is its lean team, which has a collective experience of over 35 years in the market.
“Given we’re a lean but hugely experienced team we can make decisions quickly. Things don’t get pushed down layers and we are at the forefront of decisions direct to the client,” adds James.
“We are able to give brokering partners certainty at the earliest possible stage. We know the most likely deal hurdles that may arise, due to years in the market, and we’re transparents about those up front. We don’t want to let brokers down and want to ensure openness and honesty across all parties.”
Trust and Confidence
Looking ahead, James urges anyone looking to take out W&I insurance to have confidence in the insurer they deal with.
“It’s imperative you work with insurance providers who can give you confidence and the ability to deliver. Reliability is key.”
“New enhancements to the market are crucial too – make sure you’re aware of what is available to you and don’t be afraid to ask, most insurance providers welcome opportunities to find solutions.”
For companies considering W&I insurance, the emphasis on partnering with experienced brokers and insurance providers cannot be overstated. Navigating the complexities of M&A transactions requires not only a robust insurance solution but also a trusted relationship with knowledgeable professionals who can provide guidance and support. As James Fletcher emphasises, understanding the intended coverage and being transparent about potential challenges are vital steps in ensuring long-term success.
Ultimately, with the continued demand in 2024 for transactional liability solutions, the W&I insurance market will continue to thrive even in a challenging albeit improving market, offering essential coverage that enhances deal confidence and fosters a more resilient M&A landscape.
Devonshire has made a strong start to life offering W&I Insurance. With policies placed and terms written, we are well placed to offer a product we know provides all the necessary support the client needs.
