Zamani Ngidi | Business Unit Manager | M&A and Cyber Solutions | Aon South Africa | mail me |
Our 5th Global Transaction Solutions Claims Study uncovers emerging trends in insurance claims. The report focuses on Representation and Warranties (R&W), Warranty and Indemnity (W&I) and tax insurance.
The study examines claim size, frequency and severity in North America (NA), Europe (including the UK), the Middle East and Africa (EMEA) and Asia and Pacific (APAC).
An overview of transaction insurance claims
Over the past three years, our Mergers and Acquisitions (M&A) and Transaction Solutions teams have placed over 3,000 R&W, W&I, tax and contingent liability insurance programs globally.
In 2023, we navigated over 150 new claims in North America. They also assisted in 48 new claims in EMEA. 2023 saw the highest-ever number of claims resolved, resulting in significant payments. We helped clients secure nearly $250 million in North America and $50 million in EMEA and APAC.
We understand the complexities of the transaction solutions market. Clients now seek solutions not only during the deal but also post-close. They expect recovery when investments suffer legitimate losses due to transaction breaches.
Repeat users are looking beyond pricing. They want insurers to run an equitable, efficient and expeditious claims process. Understanding trends in R&W, W&I and tax insurance claims has become critical.
Key findings from the EMEA region
The Global Transaction Solutions Claims study highlights several important findings from EMEA:
- Claim frequency – Approximately 15% of W&I policies issued between 2017 and 2023 in EMEA had at least one claim notification.
- Payouts – Insurers paid over $120 million to our clients on W&I and tax claims in EMEA. Over $20 million was paid since the last study in 2023. These figures exclude deductible erosion.
- Common breach types – Tax, financial statements, litigation and compliance with laws remain the leading breach categories. Financial statement breaches continue to be the top driver of loss.
- Claims Activity – In 2023, our clients in EMEA submitted 48 W&I claims.
The study emphasises the growing importance of W&I insurance. It is essential for mitigating risks in M&A transactions across the globe.
Breakdown of breach types and loss attribution
Tax-related breaches continue to be the most frequent in EMEA. This is due to post-transaction tax audits in several European jurisdictions. Increased scrutiny from tax authorities in the current economic climate also contributes. However, tax claims often don’t result in significant payouts. Many audits conclude without additional tax liabilities. Tax claims account for just 5.6% of total loss payouts under W&I policies.
Financial statement breaches are the second-most common breach type. They represent the largest proportion of losses (31%). These claims often impact the purchase price of the acquired company. Loss calculations may be claimable on a multiplied basis, but they vary by jurisdiction. In Germany, loss calculations based on company value are usually excluded from acquisition agreements and W&I policies.
Other breach categories, such as material contracts, litigation, and compliance with laws, generate substantial losses. Insurers scrutinise underwriting diligence related to material contract breaches. These breaches can significantly impact financial outcomes. If recurring revenue linked to a terminated contract was included in purchase price calculations, losses can be significant. Litigation-related claims are also rising, often involving substantial defense costs.
W&I by proportion of breach type versus percentage of total paid loss attributable by breach type for the period 2016 – 2023
Claims processing efficiency and challenges
A survey of insurers revealed key challenges in the efficient processing of W&I claims:
- Insufficient information – 61% of insurers cited inadequate information on breaches or losses as the main issue delaying claims resolution. 42% ranked it as the second-most critical issue.
- Delays in providing information – 31% ranked slow information provision as the top challenge. An additional 42% identified it as the second-most significant obstacle.
- Resolution timelines – Between 2020 and 2023, the average time to resolve a W&I claim in EMEA was 12-18 months. Factors such as case complexity and the volume of documentation influenced this timeline.
However, insurers agree that well-documented claims and proactive engagement with insurers speed up the process. Claims often progress more efficiently than pursuing legal action against sellers directly. Proactive claims management and collaboration are key to expediting resolutions.
