The volatility, uncertainty, and shifting risk appetites that are shaping today’s M&A landscape are forcing transactional insurance solutions to move from “nice-to-have” to an essential component of many deals. Buyers and sellers are increasingly using insurance to bridge gaps, de-risk transactions, and keep deals on track when external conditions might otherwise cause hesitation.
There are key insurance tools that can help to support deal certainty and navigate choppy market waters, and understanding how to strategically use them will be essential moving forward.
Representations and warranties insurance (RWI) has become a mainstay in M&A transactions. This coverage protects the insured party, which is typically the buyer, against breaches of the seller’s representations and warranties in the purchase agreement.
By shifting risk to an insurer, RWI allows sellers to achieve a “clean exit” with lower escrow or indemnity obligations. Buyers, meanwhile, gain protection without needing to pursue a seller post-closing if issues arise. RWI also helps facilitate competitive auction processes. Sellers can offer limited indemnification packages without losing bidder interest because buyers know they can rely on insurance instead.
In volatile markets, RWI adds an essential layer of security, making it easier for parties to close deals quickly with fewer post-closing disputes.
Tax risks, whether real or perceived, can derail otherwise attractive transactions. Complex issues around net operating losses (NOLs), tax basis step-ups, or historic filing positions can create buyer concern, particularly when regulatory interpretations are shifting.
Tax insurance offers a targeted solution, protecting against specific tax exposures identified during diligence. By transferring this risk to an insurer, buyers and sellers can agree to proceed without forcing price reductions or special escrows.
Today, tax rules are evolving rapidly across jurisdictions, so having access to tax insurance can be the difference between a closed deal and one that falls apart during diligence.
Some deals have known risks too significant or uncertain for traditional indemnities to solve, such as pending litigation, regulatory investigations, environmental claims, or contractual disputes.
Contingent liability insurance is designed for these situations. It protects against specific “known unknowns” that could otherwise derail a deal or materially impact valuation. This solution allows buyers to move forward without demanding outsized price reductions or other protections that sellers may resist. It also enables sellers to cleanly exit deals without carrying lingering exposures.
As markets become more volatile and regulators become more aggressive, contingent liability insurance is becoming a more common part of sophisticated deal structures.
Title insurance remains important in deals involving real estate or significant physical assets. It protects against defects in ownership, liens, encumbrances, or zoning issues that might otherwise surface post-closing.
Beyond title, specialty insurance solutions are gaining traction, including:
- Intellectual property (IP) insurance to cover IP ownership and infringement risks.
- Environmental insurance for properties with historical contamination concerns.
- Cyber insurance for technology-heavy acquisitions facing growing cybersecurity threats.
These products help buyers price risk more accurately and sellers avoid drawn-out negotiations over indemnities.
Several trends are shaping how transactional insurance is used today:
- Earlier Engagement: Sophisticated buyers and sellers are engaging insurance brokers and underwriters earlier in the deal process to avoid delays at signing.
- Tailored Coverage: Policies are increasingly customized to the nuances of a specific transaction, rather than relying on one-size-fits-all templates.
- Integration with Structuring: Insurance solutions are often layered alongside deferred payments, earnouts, and other creative structuring techniques to maximize flexibility and minimize deal friction.
Working closely with experienced brokers, legal counsel, and underwriters is critical to designing the right package for each deal.
Enhanced Deal Certainty: Transactional insurance solutions reduce the risk of last-minute deal collapses by smoothing over diligence findings and helping parties allocate risk efficiently.
More Competitive Bidding: Buyers who can offer “cleaner” deals backed by insurance are better positioned to win auctions without demanding onerous indemnities from sellers.
Risk Management: Insurance is an important tool for private equity firms, strategic buyers, and corporates to safeguard returns and meet internal risk thresholds, even in an unpredictable macroeconomic environment.
Transactional insurance can no longer be an afterthought. It should instead be used as a proactive, strategic tool to unlock deal value, accelerate execution, and provide confidence in the face of uncertainty. When firms understand how to leverage insurance intelligently, they will be better positioned to mitigate risks and seize opportunities as market conditions evolve.
