Warranty & Indemnity insurance for mid-market deals: protecting value and providing certainty

Introduction

Warranty and indemnity insurance (W&I insurance) has become a mainstream feature of M&A transactions in Australia over recent years, with up to 60% of deals above $20 million in enterprise value now insured. While the product is well understood in the large-cap, upper mid-market and private equity space, the landscape for all mid-market transactions — broadly, deals with an enterprise value of up to $250 million — has evolved significantly. Falling premium rates, new insurer products, and streamlined underwriting processes mean that W&I insurance is now more accessible, more cost-effective, and more strategically relevant to mid-market deal execution than at any previous point.

Whether you are advising on sell-side mandates, running competitive processes, coordinating cross-border acquisitions, or deploying capital directly, understanding the current W&I environment — and working with advisers who can navigate it efficiently — is increasingly a point of competitive advantage. We have put together this briefing as a practical update for our network of mid-market deal participants on how the market has shifted and where the opportunities now lie.

What is W&I insurance?

At its core, W&I insurance covers financial loss suffered by a buyer from a breach of warranties and indemnities in a sale and purchase agreement. In its most common form — a buy-side policy — the buyer claims directly against the insurer rather than pursuing the seller. The policy may be negotiated as "no recourse" (where the insurance covers the full warranty package) or "limited recourse" (where the seller retains some residual liability for coverage gaps).

Why W&I insurance is particularly well-suited to the mid-market

Insurers have strong appetite for mid-market deals — they offer lower aggregate exposure than large-cap transactions, and there is greater volume. In practice, this translates into some real benefits for deal parties:

Lower barriers to entry

Deals with an enterprise value of $5 million and above are now insurable, and dedicated SME products (for deals with an enterprise value of up to $10 million) offer light-touch underwriting at reduced cost.

Streamlined process

Lower financial exposure means insurers will often run a lighter underwriting process with reduced Q&A — a real advantage where speed matters.

Competitive pricing

Premiums for mid-market share deals currently sit at 0.7% to 1.3% of the amount of cover — down from average premiums which typically exceeded 2.0% in 2022 to less that 1.0%at present.

Manageable total cost

The all-in minimum cost sits at approximately $150,000 to $200,000 (including premium, taxes, broker commission, and underwriting fee) and scales upwards from that depending on the amount of cover. That is a meaningful outlay on smaller deals but is increasingly easy to justify for any given mid-market deal given the protection and deal facilitation it delivers.

Current Market Conditions

The Australian W&I market is robust and competitive. Core insurers see Australia as a strategic priority, and several new entrants have entered the market in recent years, with more expected to follow. Strong supply sustains a low-premium environment, and insurer appetite now extends to areas that were historically challenging (including mining, environmental, and excess cyber).

Insurers are also innovating to differentiate, with certain insurers offering products which target the mid-market and SME space directly. In this environment, choosing the right insurer matters as much as choosing the right price. Claims responsiveness, coverage flexibility, and underwriting approach often make the real difference.

Key Benefits for Buyers and Sellers

For buyers, W&I insurance provides meaningful protection where seller liability is limited, helps distinguish a bid in a competitive process, removes credit risk against the seller post-sale, and can support acquisition finance.

For sellers, it delivers a genuinely clean exit — no escrow, no retention, and no (or limited) exposure to post-sale claims.

For both parties, it takes heat out of warranty negotiations, shifts focus to deal commercials and preserves relationships where the seller remains involved post-sale.

Certainty as Currency

We are increasingly seeing that sellers will prioritise a buyer who can get the deal done with speed, certainty and low post-sale exposure, over one offering a marginally higher price. Risk should not be a deal blocker — if you can manage it through practical structuring, you create confidence on both sides of the table. Early engagement on risk allocation, including how to de-risk through insurance, consistently drives better outcomes.

For corporate advisers running sell-side processes, PE sponsors building a platform, growing that platform and then seeking to cleanly exit that investment, and corporates executing strategic M&A, this market shift is well worth noting. Advisers who bring integrated solutions — including established broker relationships and a clear understanding of risk allocation (including how to de-risk through insurance) — are best placed to help get deals across the line quickly and efficiently. W&I insurance is no longer just about risk transfer; it has become a genuine strategic tool to promote execution certainty.

Typical Policy Terms

Typical mid-market terms: general warranty cover for 3 years; tax and title cover for 7 years; de minimis at 0.1% of enterprise value; retention at 1% of enterprise value; amount of cover depends on the size of the deal and the risk profile of the target (with higher percentages of cover relative to deal value for smaller deals).

Coverage typically extends to the following warranties: accounts, title and capacity, compliance with laws, material contracts, employees, tax, and assets. General exclusions apply to forward-looking warranties, known matters, consequential loss, and fines.

The Critical Role of Deal Advisers

Relevant to our network of mid-market deal participants, one point is worth highlighting: the quality of due diligence directly shapes how broad the coverage will be. Diligence should cover legal, financial, and tax matters at a minimum — gaps tend to invite exclusions.

Unresolved issues flagged in diligence reports may attract specific exclusions and disclosed but unaddressed matters become "known" — falling outside coverage automatically. Recommending broad SPA warranties to address specific issues can also put those matters on the insurer's radar.

At its heart, the underwriting process is about showing the insurer that the buyer and its advisers understand the target's risk profile and have thought carefully about key risk areas. Areas that currently attract close attention include employment (e.g. workforce classification, payroll sampling of +5% of employees), condition of assets, material contracts, IP ownership, regulatory compliance, and restructuring steps.

Claims Experience

The claims landscape is maturing. Around 10% to 15% of insured deals now result in a claim, with most arising within two years of inception. Settlements are getting faster, and claims arise from deals of all sizes — it is worth noting that deal size alone does not dictate the risk profile. The most common breach categories are compliance with laws, tax, financial statements, material contracts, and litigation. By way of illustration, recent successful payouts include $22 million for employee underpayment and $5 million for misstatement of accounts.

Process and Timing

A buyer-initiated placement typically takes around four weeks from engagement to policy inception, while a seller-initiated ("sell-side flip") process typically takes six weeks or more but gives the seller greater control over coverage and bidder management. Once appointed, a primary insurer can typically complete mid-market underwriting in 7 to 10 business days. Our experience is that the best outcomes come from engaging the broker at an early stage — it makes a real difference to coverage and pricing.

How We Can Assist

In our view, the question is no longer whether W&I insurance suits a given mid-market deal, but how early to integrate it into the deal strategy.

Our team regularly deploys W&I insurance across mid-market transactions, working closely with specialist brokers to structure placements tailored to deal dynamics. We are happy to connect you with the right brokers, coordinate the insurance workstream alongside the transaction, and ensure diligence and SPA processes align from the outset for optimal coverage. If you are advising on or considering a transaction where W&I may add value, please do not hesitate to reach out — we would welcome the conversation.

Related Article

This article develops our previous insight "Introduction to warranty and indemnity insurance (W&I) in M&A transactions".