Definition:Warranty and indemnity insurance
🤝 Warranty and indemnity insurance (commonly known as W&I insurance or, in the United States, representations and warranties insurance) is a transactional insurance product that covers financial losses arising from breaches of the warranties and indemnities given by the seller in a mergers-and-acquisitions (M&A) purchase agreement. Within the insurance industry, W&I coverage plays a prominent role in acquisitions of insurance carriers, MGAs, brokerages, and insurtech firms, where buyers seek protection against undisclosed liabilities such as reserve inadequacy, regulatory non-compliance, or misrepresented underwriting performance.
⚙️ A W&I policy attaches to a specific transaction and can be structured as a buy-side or sell-side policy, though buy-side placements dominate the market because they allow the buyer to claim directly against the insurer rather than pursuing the seller post-closing. The underwriter conducts a thorough review of the purchase agreement, due diligence reports, financial statements, and disclosure schedules to assess the quality of the deal process and identify areas of heightened risk. The policy mirrors the warranty schedule in the purchase agreement, with certain exclusions for known issues, fraud, forward-looking statements, and sometimes specific items flagged during due diligence. Premiums typically run between one and three percent of the policy limit, with retentions (deductibles) that decrease over the policy term.
📊 The rapid expansion of the W&I market has reshaped deal dynamics across the insurance sector and beyond. Sellers — including private equity sponsors exiting insurance platform investments — benefit from cleaner exits with reduced escrow holdbacks, while buyers gain certainty that a creditworthy insurer stands behind the seller's representations. For carriers underwriting W&I policies, the line demands deep transactional expertise and rigorous risk assessment, because a single large claim — say, from a materially under-reserved book of casualty business — can be substantial. The product's growth has also spurred the emergence of specialized MGAs and insurtech platforms that streamline the quoting and binding process, reducing turnaround times from weeks to days.
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