The who, what and why of W&I Insurance

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By Howden

Warranty and Indemnity Insurance (W&I) is a specialised form of insurance that can provide protection to both the buyer and seller of businesses.

When considering selling a business, there are many risks and uncertainties involved, including the possibility of warranty claims from the buyer after the sale. W&I Insurance provides coverage for losses resulting from breaches of representations, and warranties made in the sale and purchase agreement of a business. This type of insurance typically covers breaches of both known and unknown issues, such as tax liabilities, environmental issues, intellectual property disputes, and other risks associated with the business being sold.

Who would benefit from W&I Insurance?

W&I Insurance is suitable for both the buyers and the sellers of a business. For buyers, it provides protection against unknown risks that may arise after the sale has been completed, allowing them to have greater confidence in the transaction. For sellers, it provides protection against potential claims that could be made against them after the sale has been completed, reducing their exposure to financial risks.

In addition, W&I Insurance is particularly useful in situations where the buyer is a private equity firm, as the firm will typically want to exit its investment within a few years. The insurance can provide a means of managing risk and allowing the private equity firm to withdraw its investment quicker.

Why should you buy W&I Insurance?

If you’re considering selling your business, there are several reasons why you should consider buying W&I Insurance which include:

1. Protection against financial loss: W&I Insurance provides protection against financial losses resulting from breaches of representations and warranties made in the SPA. This can provide peace of mind for buyers and sellers, knowing that they are protected against potential claims.
2. Facilitates faster deal closures: By providing protection against unknown risks, W&I Insurance can help speed up deal closures. This can be particularly useful in situations where there are multiple parties involved in the transaction.
3. Enhances deal certainty: W&I Insurance can enhance deal certainty by providing a level of protection against unknown risks. This helps to increase the confidence of both buyers and sellers in the transaction, reducing the likelihood of any last-minute surprises.

Why is a good broker important?

When purchasing W&I Insurance, it’s important to partner with a broker who has experience in this area. A good broker can provide valuable advice on the scope and level of coverage required, as well as the insurer’s claims history and financial stability.

In addition, a good broker can help to negotiate the terms of the policy and ensure that the policy wording is clear and concise. This can be particularly important in situations where there are complex issues involved, such as cross-border transactions or disputes over intellectual property.

Howden has a specialist broker team for W&I Insurance and could support you with the knowledge and cover you need when buying or selling a business.

If you’re considering selling your business, purchasing W&I Insurance can provide peace of mind and facilitate faster deal closures. However, we recommend that the broker you work with has proven experience in this area. They can ensure that the policy wording is clear, and the coverage is appropriate for your specific situation.

If you’d like to find out more about how we can support you with W&I Insurance, reach out to our specialist team today as we’d be more than happy to help.