De-Risking M&A

Despite significant economic uncertainties, 2025 has been a surprisingly active year for corporate mergers and acquisitions (M&A).

According to the Institute for Mergers, Acquisitions & Alliances, the number of global transactions is expected to approach 40,000 this year, a 10% increase from 2024. At the same time, the value of those transactions is projected to grow by 36%, from $2.6 trillion in 2024 to $3.5 trillion this year— reaffirming the notion that dealmakers remain attracted to high-quality, and thus more valuable, companies.

In this setting, transactional risk insurance products—once confined to mega-sized deals—have stepped out of the background and into a more prominent role. Products including representations and warranties insurance, tax indemnity coverage, and contingent risk solutions are increasingly critical in closing transactions with greater confidence and have become standard features in the dealmaking tool kit.

“Transactional risk insurance products have been pretty mainstream now for seven or eight years,” says Craig Schioppo, global head of transactional risk at Marsh. “Mainstream meaning that these products are thought about in most M&A transactions in almost every industry, including real estate, energy, or even intellectual property deals.”

The M&A Insurance Toolbox

Representations and Warranties (R&W) Insurance

R&W is now a mainstream fixture in both sponsor-led and strategic deals around the world. Also known as warranty and indemnity in the United Kingdom, it covers the buyer from unforeseen costs caused by any breaches of the seller’s representations while acquiring a business.

“It is hard to judge how widespread the insurance is in M&A,” says Andrew Johnson, head of mergers and acquisitions and strategic solutions for Miller Insurance. “Typically, 90–95% of real estate transactions in Europe are insured; but if it’s a mining deal in Africa for example, which is a spicy sector for some insurers, the rate probably drops to 30%.”

By shifting potential liabilities (such as breaches of representations, tax exposures, or contingent risks) from the parties to insurers, these products reduce the need for prolonged negotiations over indemnities, caps, and escrow amounts. This streamlines deal structuring, enabling buyers to offer higher upfront value and sellers to walk away cleaner and faster.

As these products have matured and demand has increased, carriers have shifted from a case-by-case approach for developing each policy to a more standardized process. That streamlines the approach but also opens the door for increased competition. Originally, each policy was negotiated from scratch, with extensive underwriting and legal inputs to address the deal’s unique risks. This meant that products were expensive, time-consuming, and largely reserved for the largest and most complex mergers or acquisitions. As demand accelerated, insurers gained experience with the traditional risks involved and standardized clauses, streamlined underwriting, and reduced costs. These products are now far more accessible and competitive, with carriers largely differentiated by regional coverage and execution speed rather than price alone.

“At the beginning of my career, we were trying to put a square peg in a round hole; while now it’s truly two square pegs,” Schioppo says. “That’s because the underlying underwriting has become, for the most part, very standard. Most carriers do the same, which has driven down the price, and now there are so many that you could shop for the best price.”

Tax Liability Insurance

While R&W insurance covers tax-related breaches that occurred prior to the acquisition and were not disclosed during the sale, tax liability coverage allows buyers to cover their new acquisition’s known tax exposures. Specifically, it protects the insured buyer if a taxing authority (local, state, federal, or foreign) successfully challenges the insured’s tax position, generally including additional taxes, penalties, interest, claim expenses, and gross-up.

“This comes up all the time during the sale of [European] football clubs, and we’ve seen a lot of them,” according to Johnson. “A club may think they’ve paid taxes correctly, only for the tax authority to reach out with a large unpaid tax bill. If you’re a buyer, this issue would come up during the due diligence process and wouldn’t be covered under W&I.”

M&A-driven firms—including private equity, hedge funds, and acquisitive corporations—are increasingly using tax liability insurance to manage risks from complex exposures. To name just one: transfer pricing arrangements, when multinational companies have intercompany pricing structures for goods, services, or IP that could be challenged by tax authorities and result in significant retroactive tax liabilities or penalties. By transferring these risks to insurers, the parties protect deal value, speed negotiations, and reduce the chance of costly post-closing disputes.

“The tax market is really evolving outside of just M&A. There’s a lot of money being made when private equity funds are restructuring a lot of the assets and portfolios of their businesses,” Johnson says. “Through that process, there are all sorts of tax issues, some multijurisdictional; so, it’s actually a lot easier to just insure that risk.”

Additionally, governments worldwide are accelerating efforts to ensure large corporations don’t exploit loopholes and mismatches in tax rules between various countries. Similarly, in the United States, the Internal Revenue Service has boosted its audit capacity and signaled a sharper focus on high-asset corporations. The heightened scrutiny has made tax audits and disputes more likely, prompting dealmakers and investors to turn to tax insurance to protect against potential liabilities.

Contingent Risk Insurance

Contingent risk insurance can be a powerful solution for risks that come with the seller that are known but difficult to quantify, such as pending litigation or unresolved regulatory matters. These policies are often custom-built and help resolve sticking points that threaten an M&A deal.

Contingent risk insurance focuses on “known but uncertain risks, like the outcome of ongoing litigation or an outstanding tax claim, which can scuttle a transaction,” Charles de Mombynes, underwriting manager of M&A in France at AXA XL, wrote in 2024. “There are many risks—either related to the transaction itself, or risks concerning the target company—that can be a deal breaker.”

Similar to tax liability products, contingent risk is typically far more expensive than R&W insurance because underwriting is detailed and intensive, usually requiring input from external counsel and subject matter experts. Still, removing or transferring a single-problem risk can make the difference between a signed deal and a failed one.

A Seat At The Table

In a market where political, economic, and regulatory uncertainties are the norm, transactional risk insurance has moved from a niche safeguard to an essential enabler of M&A. Covering everything from cross-border complexities to known tax exposures and contingent risks, this coverage gives dealmakers the confidence to proceed despite that volatility.

Yet, as Johnson notes, that confidence depends on the quality of the deal itself: “I always say to clients, just because you’re insured doesn’t mean you’re off the hook. Insurers will only give good coverage if the due diligence is done as if the deal was non-insured. Because of increasing claims, insurers are looking for greater granularity than they’ve ever done.”

In today’s market, the best protection is a well-structured deal, and insurance has a permanent seat at the M&A table to help make that happen.