Warranty and Indemnity insurance is designed to protect parties in M&A transactions from financial losses arising from breaches of warranties or indemnities specified in the sale and purchase agreement (SPA).
There are two main types of W&I insurance: buyer-side policies and seller-side policies.
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Buyer-Side Policies: These policies provide coverage to the buyer for losses resulting from breaches of warranties and indemnities by the seller. The buyer can claim directly under the insurance policy without pursuing the seller.
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Seller-Side Policies: These policies protect the seller against claims made by the buyer for breaches of warranties and indemnities. The insurer pays the buyer on behalf of the seller, thus protecting the seller from financial liability.
Essential Tips for Choosing the Right W&I Insurance Policy
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Assess Your Risk Profile
Understanding the specific risks associated with your transaction is the first step in choosing the right W&I insurance policy. Conduct a thorough risk assessment to identify potential areas where breaches of warranties or indemnities could occur. This will help you determine the scope of coverage you need and ensure that your policy addresses your unique risk profile.
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Evaluate Coverage Options
W&I insurance policies can vary significantly in terms of coverage. It’s crucial to evaluate the different coverage options available to ensure that the policy meets your needs. Key aspects to consider include policy limits, coverage period, and exclusions.
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Understand the Underwriting Process
The underwriting process for W&I insurance can be detailed and time-consuming. Insurers will conduct a thorough review of the transaction, including due diligence reports, the SPA, and other relevant documents. Being prepared for this process can help expedite it. Ensure that you have all necessary documentation ready and that your legal and financial advisors are available to assist with the process.
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Choose a Reputable Insurer
Select an insurer with a proven track record in providing W&I insurance for similar transactions. Look for insurers who have a deep understanding of the M&A landscape and a strong financial standing. Reading reviews and looking for recommendations from industry professionals can also help you make an informed decision.
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Engage Professional Advisors
Engage professional advisors, including legal and financial experts, who specialise in M&A transactions and insurance. They can provide valuable insights, help you assess your risk profile, and guide you through the process of selecting the right policy. Their expertise can also be crucial during the underwriting process and when negotiating policy terms.
If you are looking for trusted advisers and brokers to help you manage W&I or merger and acquisition insurance for your firm, then 4Sight Risk Partners is for you. Visit www.4sightrisk.com.au/contact-us if you have inquiries about our services.
