Representations and Warranties Insurance: Cost, Coverage, and Claims

Representations and warranties insurance (RWI, also called R&W insurance) is a policy that pays for losses caused by breaches of the seller's representations and warranties in an acquisition agreement, and in most deals the buyer buys it. The buyer claims against the insurer instead of the seller, so the seller can close with little or nothing held back for indemnity. As of September 2026, a typical buy-side policy carries a limit of about 10% of enterprise value, a retention of roughly 0.5% of enterprise value that drops after the first year, and a premium of around 3% of the limit. It excludes what the buyer knew before signing, what its diligence did not cover, and the purchase price adjustment.

RWI is now common in private deals. In the ABA's 2025 Private Target Deal Points Study, 63% of agreements referenced RWI, up from 55% in the 2023 study, according to K&L Gates' summary. SRS Acquiom's 2026 study of more than 2,300 private-target deals put RWI at about 46% of deals, according to Fasken's review of the study. BD Emerson is not an insurer, broker, or underwriter. Underwriters read the buyer's diligence reports, including the financial, technology, and cybersecurity reports BD Emerson writes, and the coverage they offer follows what those reports support. Work with an R&W broker and deal counsel on policy terms.

How much does R&W insurance cost?

The cost has three parts: the premium, the retention the buyer absorbs before the policy pays, and a one-time underwriting fee. The ranges below come from named broker and law firm publications, and they move with the M&A market. Marsh reported in its March 2026 release that average primary-layer R&W premium rates in North America rose 16% in 2025, after a 14% decline in 2024.

Rate on line is the premium divided by the limit. On a $200 million deal with a $20 million limit, a 3% rate on line is a $600,000 premium, the initial retention runs about $900,000 to $1.2 million, and it falls to $600,000 to $800,000 after the first year. Gallagher's 2026 overview reports faster rate increases in harder sectors such as healthcare, and says most insurers cover fundamental representations for seven years at no added charge, while Gallagher's financial institutions guide prices that seventh year as an added premium. The buyer usually buys the policy, though Norton Rose Fulbright notes that the parties often negotiate the premium as a transaction expense and sometimes split it, and that the retention is often split, with the buyer bearing the first half and the seller the second, usually through an escrow. Smaller deals face floors: Lockton reports policies available at enterprise values as low as $10 million, and the Gallagher financial institutions guide cites minimum premiums around $80,000 and minimum retentions around $150,000.

What is the difference between buy-side and sell-side policies?

A buy-side policy insures the buyer, and Norton Rose Fulbright describes the vast majority of current policies as buy-side. The buyer claims directly against the insurer and controls its own claim, and the insurer waives subrogation against the seller except for fraud, as Allen Matkins' April 2026 note on claims explains, so the policy can pay for a seller's fraud and the insurer can then pursue the seller. A sell-side policy insures the seller against its own indemnity obligation, so the buyer still claims against the seller, and the seller then claims against its insurer. In some auctions, sellers start the insurance process themselves, collecting indications to show bidders and then handing the policy to the winning buyer as a buy-side policy, which lets the seller propose a limited indemnity in its first draft of the agreement.

How does the underwriting process work?

Underwriting runs in the final weeks before signing, and its main input is the buyer's diligence. Gallagher recommends engaging a broker about a month before signing, and Norton Rose Fulbright notes that a policy can bind in as little as a week, with two to three weeks more common. The process runs in this order:

1. Submission: the broker sends insurers the draft purchase agreement, the target's financial statements, and the marketing materials.
2. Non-binding indication letters: insurers quote premium, retention, and coverage, and list proposed exclusions and areas of focus.
3. Selection: the buyer and broker choose a carrier, accept its proposal, and pay the underwriting fee.
4. Diligence review: the underwriter reads the purchase agreement, the disclosure schedules, the data room, and every diligence report.
5. Underwriting call: the underwriter questions the deal team and its advisers on the negotiations, the terms, and the diligence, in a call Norton Rose Fulbright puts at about two hours.
6. Follow-up and bind: the underwriter sends written questions and a draft policy, and the policy binds at signing, typically with a no-claims declaration from the buyer that it repeats at a deferred closing.

The reports drive the result because an underwriter insures only what the buyer has examined. A problem the reports found is a known matter and comes out of coverage, and an area the reports skipped or covered thinly draws a deal-specific exclusion. Holland & Hart's August 2026 note says that gaps or shortcuts in financial, tax, environmental, or legal diligence can lead to broader exclusions. Reports that state their scope, the evidence tested, and a conclusion for each area give the underwriter a basis to cover it. Our guide to the due diligence report sets out that structure, and our financial due diligence checklist covers the financial statement work behind the largest category of paid claims.

What does R&W insurance exclude?

Every policy carries standard exclusions, and most add deal-specific exclusions where diligence was thin. The standard list below combines Gallagher's 2026 overview, its financial institutions guide, and the Allen Matkins and Norton Rose Fulbright publications.

The AI row comes from Lockton's 2025 market update for the Americas, which reports that some carriers apply a broad copyright infringement exclusion to targets with a material proprietary AI model trained on publicly available data. The same update reports few outright deal-specific exclusions in the current market, so an underwriter that proposes one is pointing at a specific diligence gap, and the broker and deal counsel negotiate its wording.

How does R&W insurance change the indemnity package?

RWI moves the risk of unknown breaches from the seller to the insurer, and the seller's indemnity shrinks to match. In a no-seller-indemnity deal, the policy is the buyer's sole recourse for breaches of the general representations, except for fraud. In a limited-seller-indemnity deal, a small seller escrow covers part of the retention. Special indemnities remain for known issues the policy excludes, such as an identified tax exposure.

The ABA data show the same shift across agreements: deals in which the representations do not survive closing rose from 30% in the 2023 study to 41% in 2025, and double materiality scrapes rose from 69% to 82%, changes the ABA and K&L Gates attribute to wider RWI use. Lockton reports that pricing no longer differs meaningfully between no-seller-indemnity and limited-seller-indemnity placements, which removes most of the buyer's cost argument for a seller escrow. Buyers that plan to use RWI should say so in the letter of intent, along with the expected seller escrow, because the seller's net proceeds depend on both.

How are R&W insurance claims made, and what gets paid?

A claim starts with notice, and late notice costs coverage. Most policies require notice as soon as reasonably practicable after the buyer learns of a potential breach, and the retention applies in aggregate across all claims rather than per claim, according to Allen Matkins. The claim then sets out the breach and the loss calculation. The insurer investigates, may associate in the defense of a third-party claim, and must consent to any settlement, according to Gallagher's financial institutions guide. Financial statement claims are the most expensive because overstated earnings inflate the price by the purchase multiple: Aon's 2026 global claims study, published in June 2026, found that 20.6% of claims on North American policies placed from 2021 to 2025 alleged loss above dollar-for-dollar, against 13.5% for 2016 to 2019.

Half of North American notices arrive more than a year after closing, so the three-year general policy period matters more than buyers expect. The breach categories also map to diligence workstreams: the financial statement and material contract claims trace to the quality of earnings and contract review, and the compliance claims trace to regulatory, privacy, and employment diligence.

How do cybersecurity, privacy, and technology diligence affect underwriting?

Cyber and privacy representations draw close underwriting scrutiny, and thin diligence there is a common source of deal-specific exclusions. McGriff's July 2022 advisory on cyber risk and RWI describes insurers answering partly diligenced cyber exposure with exclusions, deemed edits to the representations, cyber sublimits or higher retentions, or a requirement to buy separate cyber coverage, and with conditional exclusions that stay in place until outstanding diligence arrives. It lists the controls underwriters look for, including multifactor authentication for remote and privileged access, tested offline backups, incident response plans, patching, vendor risk review, a data inventory, and penetration testing, and it notes that the RWI policy can sit excess of the target's own cyber policy.

Claims data show where the exposure lands. Aon's 2026 study ranks cyber and privacy issues third in severity within North American intellectual property claims and says actual security incidents are not the typical cause of loss; the typical facts are PCI compliance violations, IT or cyber asset deficiencies, and data privacy law violations. A missing representation is a gap of its own: Fasken's review of SRS Acquiom's 2026 study reports that 22% of 2025 deals had no cybersecurity representation, up from 5% in 2024, and a policy cannot pay for a breach of a representation the agreement never made.

In BD Emerson's view, a cyber diligence report that will face an underwriter should state its scope, test the controls McGriff lists against evidence, document incident history, map personal data to the privacy laws that apply, and rate each finding by severity with the deal mechanism it needs. Our cybersecurity due diligence team writes reports in that form, and our private equity due diligence guide shows where the cyber workstream sits in the deal timeline.

Frequently asked questions

What is representations and warranties insurance? Representations and warranties insurance is a policy that pays for losses caused by breaches of the seller's representations and warranties in an acquisition agreement. In most deals the buyer buys it and claims against the insurer instead of the seller, so the seller can close with little held back. It covers unknown breaches and excludes what the buyer knew before signing.

How much does rep and warranty insurance cost? As of September 2026, premiums run around or slightly above 3% of the limit, according to Gallagher, and buyers typically buy a limit of about 10% of enterprise value. On a $200 million deal with a $20 million limit, that is about $600,000 of premium, plus an underwriting fee of $35,000 to $50,000 and a retention of about 0.45% to 0.60% of enterprise value.

Who pays for rep and warranty insurance, the buyer or the seller? The buyer usually buys the policy and is the insured, but the parties often negotiate the premium as a transaction expense and sometimes split it. The retention is often shared, with the buyer bearing the first half and a seller escrow the second. In no-seller-indemnity deals, the buyer bears the full retention and the seller has no escrow for general representations.

What does rep and warranty insurance not cover? Policies exclude breaches the deal team knew about, matters disclosed in the schedules, covenants, projections and forward-looking statements, purchase price adjustments, asbestos and certain pollutants, and the availability of net operating losses. Underwriters add deal-specific exclusions for areas the diligence did not cover or covered thinly, such as cybersecurity, privacy, or wage and hour claims.

How often are rep and warranty insurance claims made? About 18% of North American policies bound from 2019 to 2023 have had at least one claim notice, according to Aon's 2026 claims study, and 51% of notices arrived more than 12 months after closing. Financial statement breaches account for the largest share of paid loss, 38% since 2019, followed by material contracts at 21% and compliance with laws at 15.1%.

Does rep and warranty insurance replace the seller's indemnity? It replaces most of it for unknown breaches of the general representations. SRS Acquiom's 2026 data show a median indemnity escrow of 0.5% of deal value in RWI deals, against 10.0% without RWI. Sellers typically remain liable for fraud, for special indemnities on known issues the policy excludes, and for any retention share the agreement assigns them.

If you are preparing for an underwriting call, our M&A due diligence team can scope the financial, technology, and cybersecurity workstreams so the underwriter has the evidence it needs before it drafts the exclusions.