Why W&I insurance is now a realistic option for SME transactions
Falling premiums, lower retentions and more streamlined underwriting are making warranty and indemnity insurance an increasingly practical option for transactions under £50m
For years, warranty and indemnity (W&I) insurance had a reputation as a product for large private equity deals. Smaller transactions, particularly those under £50m enterprise value, were assumed to be too small to justify the premium, the underwriting fees or the effort. That assumption is out of date.
A market that has changed shape
The biggest shift is competition. More insurers and MGAs now write W&I, and many have deliberately moved into the lower mid-market. Greater capacity has pushed pricing down, and minimum premiums on smaller deals are far lower than they once were. For a deal that previously looked marginal, the cost now sits comfortably within normal transaction expenses. Minimum premiums for a traditionally underwritten policy are currently around £25,000 - £30,000, depending on the transaction and cover required.
Retentions have followed the same path. Buyers can now often secure cover with a retention well below the levels that were standard a few years ago, which means less of the risk sits with the parties.
Underwriting that fits the deal
A common objection was that underwriting a small deal costs too much in time and fees. Insurers have responded with more proportionate processes: due diligence scoped to the size and risk of the target, quicker turnaround and clearer expectations at the outset. A policy can now be placed within the timetable of a typical SME transaction rather than holding it up.
Why it matters to each party
For sellers, W&I can change the shape of the negotiation. Where a buyer would otherwise ask for large escrows, long-running warranty claims or personal exposure after completion, a buyer-side policy lets the seller walk away with more of the proceeds and a cleaner exit. For an owner-manager selling a business they have built, that certainty is often worth more than the headline price movement.
For buyers, the policy provides recourse to a creditworthy insurer rather than to a seller who may be an individual, a retired founder or a vehicle with no remaining assets. It can also extend the period and scope of protection beyond what a seller would be willing to give. In competitive processes, offering to rely on W&I instead of seller warranties can make a bid more attractive.
For private equity houses, W&I has become part of the standard toolkit. Funds that are used to the product on larger deals increasingly want it on bolt-ons and smaller platform acquisitions, where the same logic applies and the process is now far less onerous.
What lawyers should know
For corporate lawyers advising on SME deals, W&I is now rarely a difficult conversation to open. Advisers who understand how it works can shorten SPA negotiations considerably, because the policy takes the place of many of the contentious points: warranty caps, disclosure fights and seller liability periods.
It is worth being honest about what a policy does not do. Cover is subject to exclusions, including known matters, certain categories of risk and, depending on the deal, areas where diligence was limited. Policies work best when they are brought in early, when disclosure is handled carefully and when the parties understand the exclusions before signing. Advisers who set these expectations early avoid surprises later, and insurers' claims experience shows that policies do pay out where the cover applies. That track record is part of why confidence in the product has grown.
When to consider it
W&I is worth exploring when:
- the seller wants a clean break or has limited ability to stand behind warranties
- the buyer wants protection beyond what the seller will offer
- the deal is competitive and a smaller or no escrow would strengthen a bid
- the buyer is financing the acquisition, and the lender wants comfort on the warranties
On smaller deals, the best time to speak to a broker is before heads of terms are finalised, so the policy can be factored into the price and structure rather than added late.
The practical takeaway
The question is no longer whether a deal is large enough for W&I. It is whether the deal has risks that a policy would handle better than an escrow or a seller guarantee. For many sub £50m transactions across the UK and Ireland, the answer is now yes, and at a cost and level of effort that would have been hard to imagine a few years ago.