2023 M&A Annual Review 13 16 Aon, 2023 Transaction Solutions Global Claims Study. 7 Following the heightened M&A volumes of 2021 and early 2022 and the proliferation of rep and warranty insurance (RWI) prior to that time, 2023 saw an uptick in the number of RWI claims and disputes over claims. A few trends have emerged, highlighting the importance of the insurance policy provisions for pursuing claims and the claims experience of RWI providers as well as premium costs: New types of claims. Historically, many claims related to breaches of financial statements, undisclosed liabilities, compliance with laws, and material contracts reps. 2023 saw an increase in claims related to cybersecurity and privacy reps, tax reps, and, in the manufacturing sector, environmental reps. The size of claims still tends to be highest with financial statement and material contract related representations, where the buyer may claim damages based on a multiple (such as the multiple used in pricing the acquisition) of the amount of the loss rather than just the amount of the loss. Claims payouts taking longer to obtain. Recent studies have shown that RWI claim payouts are taking longer to obtain (in the range of one to three years), with the claims process becoming more adversarial and resourceintensive. One factor behind this trend could be the complex nature of some alleged breaches. For example, claims such as trade secret theft and IP infringement are often aggressively pursued and lead to higher defense costs. Payout experience. The cost of RWI has been closely followed, but information on payouts on claims under RWI policies has been harder to find. One broker reported that, for claims since 2013, 33% settled within the policy’s retention, and, while a number of claims still remain active, only 15% have resulted in payment by the insurer.16 The broker also reported that claims are made on about 20% of policies. Inadequate information cited for delays. On paper, most RWI policies contain buyer-friendly insurer consent and notification requirements. However, in practice, insurers processing claims say they are provided with inadequate information that prevents them from analyzing the quantum of a loss or the presence of a breach. Another common reason for the denial of claims is the failure of the insured to obtain the insurer’s consent in settlements. Increasing Experience with Rep & Warranty Insurance Claims RWI claim payouts are taking longer to obtain (in the range of one to three years), with the claims process becoming more adversarial and resource-intensive. For further discussion on rep & warranty insurance, see our April 26, 2023 client alert, “RWI Market Update: Good News for Buyers.”
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