Some useful insights here from GILC;
Warranty and related specialty insurance products are becoming increasingly important tools for managing transactional, trade, tax and regulatory risks, according to a new report from Global Insurance Law Connect.
The report draws on analysis from GILC members across 25 jurisdictions and examines the development of warranty and indemnity insurance (W&I), tax and contingent risk insurance, trade credit insurance, and insurance cover relating to fines and penalties. It finds that these products are moving closer to the mainstream of dealmaking, credit protection and risk allocation, although growth remains uneven across different markets.
Demand is being driven by pressure in the underlying commercial environment rather than insurance innovation alone. Competitive M&A processes are increasing the need to bridge the gap between buyer protection and seller finality, while insolvency, payment delays and geopolitical disruption are encouraging businesses to seek greater certainty around counterparty risk. Increasingly complex tax, regulatory, environmental and litigation exposures are also creating demand for solutions that can isolate and manage specific risks.
W&I insurance is now embedded in the M&A toolkit in several developed insurance markets, including the UK and Australia. Its use is also growing in countries including Ireland, Italy, France, Germany, Austria, Greece and Poland, particularly in competitive auctions, private equity exits and larger or cross-border transactions.
However, adoption remains constrained in some jurisdictions by limited awareness, local underwriting capacity, transaction size, cost and regulatory uncertainty. International insurers, managing general agents, reinsurers and the London Market continue to play an important role in supporting placements where domestic capacity is limited.
Gillian Davidson, Chair, Global Insurance Law Connect Chair, said: “The global market for warranty and related specialty insurance has reached an inflection point. These products can no longer be viewed simply as niche tools used only in the most sophisticated transactions.
“Across the jurisdictions surveyed, businesses are increasingly turning to insurance to manage defined commercial problems, unlock transactions and create greater certainty. However, international capacity alone is not enough. Successful placements still depend on local law, high-quality due diligence, clear disclosure and careful policy drafting. The market is globalising, but confidence continues to be built locally.”
The report identifies tax liability and contingent risk insurance as a significant area of opportunity. Demand is developing in response to more complex tax regimes, increased regulatory enforcement, litigation risk, environmental liabilities and the need to ring-fence exposures that might otherwise prevent a transaction from proceeding or require indemnities, escrows or price reductions.
By contrast, insurance for fines and penalties remains legally constrained across many jurisdictions. The report finds that criminal, punitive and administrative sanctions are generally considered uninsurable where cover would undermine the personal, punitive or deterrent purpose of a penalty. Markets commonly distinguish between the direct transfer of punitive sanctions and potentially insurable defence costs or compensatory consequences.
The report highlights that insurers and brokers should focus on education, responsiveness and product flexibility, while insureds should treat insurance as part of the transaction architecture rather than a late-stage backstop. International policy wording should not simply be transplanted into individual jurisdictions without considering local legal concepts, regulation, governing law and market practice.
Be the first to comment