Warranty and indemnity (W&I) insurance claims have increased hugely in recent years amid a growing number of mergers and acquisitions (M&A), research from Marsh has found.
The insurance broker's Transactional Risk Insurance Claims Study shows that W&I claims increased by 293% between 2016 and 2018 in Europe, the Middle East and Africa.
This correlates with increasing demand for W&I coverage from buyers and sellers to protect M&A deals, particularly transactions worth in excess of $1bn (£0.82bn).
Marsh said that 17% of these large deals have triggered a W&I claim since 2016 amid pressure to conclude them quickly. Its clients have received $100m from W&I claims in three years.
"W&I insurance is no longer just a deal facilitation tool but a proven risk transfer mechanism, as buyers and sellers take advantage of the product to protect even the most complex and cross-border deals," said Marsh JLT Specialty managing director, Lorraine Lloyd-Thomas.
The study charts the growth of W&I insurance over the last decade and details 175 W&I loss notifications across 24 countries in Europe, the Middle East and Africa.
The findings show that 31% of W&I claims notifications made during the last decade were related to tax, while 23% were to do with financial statement warranties.
Tax notifications have become increasingly frequent since 2016.
Moreover, the researchers found that there has been a significant reduction in the amount of time it takes to resolve a W&I claim.
While 100% of claim notifications took more than two years to resolve in 2012, two-thirds were resolved and paid within six months in 2017, for example.
"As the number of M&A transactions continues to rise, so too is competition in the insurance sector to develop innovative solutions that meet the increased demand for W&I coverage," Lloyd-Thomas said.
"This means that policy wordings are now very comprehensive and more likely to be triggered in the event of a claim."
