Banking and Business – July 2026
Representation and Warranties Insurance Democratization: A Game Changer for Many Deals
Introduction
Representations and warranties insurance (“RWI”) for mergers and acquisitions (“M&A”) is more accessible than ever due to increasing democratization in the market. Now, RWI can be a viable option for smaller, mid-market deals due to:
- competitive premium rates;
- lower minimum premiums;
- expanded coverage limits;
- reduced initial retentions;
- streamlined underwriting processes and innovations; and
- flexible diligence requirements(1)
Thus, parties to deals under $20M in enterprise value can seriously consider whether RWI is viable for their transaction.
Brief Overview of Representations and Warranties Insurance
RWI effectively replaces the traditional general indemnity escrow to remedy a buyer’s losses arising from inaccuracies or breaches of representations and warranties (“R&W”) by shifting the indemnity burden to the insurer. The advantages of this are clear. For sellers, RWI offers a cleaner exit post-closing with faster access to proceeds because the purchase price is no longer tied up in escrow. Indemnity caps are almost always lower in deals with RWI than not, with median indemnity caps dropping as low as 0.25% of the transaction value.(2) For buyers, agreeing to purchase an RWI policy can make their bids more attractive to sellers for those same reasons. Additionally, buyers can enjoy RWI coverage in greater amounts than the indemnity cap sellers may be willing to accept, with potentially longer survival periods.
RWI policies can insure either buyer or seller, although over 90% of policies are buyer-side.(3) Buyer-side policies are a form of first-party coverage, under which the buyer is the insured party and files claims with the insurer rather than the seller. Conversely, seller-side policies are liability policies, typically undertaken when the buyer is averse to RWI, where the seller is the insured and seeks reimbursement from the insurer.
Note that RWI is not a blanket guarantee because RWI covers financial losses arising from unknown inaccuracies or breaches of R&W. To that end, every RWI policy excludes certain categories. Some are universal across all policies, such as
- disclosed known issues;
- structural mechanics like purchase price adjustments or breaches of covenants post-closing; and
- forward-looking statements and financial projections.
The Effect of Representations and Warranties Insurance Democratization on Pricing
Traditionally, only large deals could justify the high fixed costs of RWI policies provided by a few carriers. But as RWI quickly grew to become a cornerstone of modern M&A risk management over the last few years, market competition greatly increased. Now, there are over 14 RWI insurance carriers in the U.S. alone, and over two-thirds of private transactions involve RWI.(4) Unfortunately, because total deal volume remained low despite the late-2025 surge in mega-deals largely driven by AI, these carriers faced excess underwriting capacities. Wanting to maintain premium volume, they targeted lower-middle-market transactions, making RWI more affordable than ever. A summary of the current state of the RWI market is provided in the following table:(5)
| Current RWI Market Snapshot | |
|---|---|
| Competitive Premium Rates | Premium rates range from 2-3% of the purchased limit, although the final rate may depend on the deal. |
| Lower Minimum Premiums | Minimum premiums can cost as little as $30,000, depending on the deal. The buyer typically pays for the premiums. |
| Expanded Coverage Limits | Coverage limits can now go as high as 50% of the enterprise value, thereby lowering rates comparatively and offering greater value for policy purchasers of deals of all sizes. |
| Reduced Initial Retentions (Deductibles) | Initial retentions can be as low as 0.5% of the enterprise value instead of the previous 1% threshold. |
| Underwriting Fees | Underwriting fees decreased to $25-50K, typically paid by the buyer. |
| Flexible Diligence Requirements | Some insurers now accept internal buyer-side diligence instead of third-party quality of earnings (?QofE?) reports, reducing underwriting costs and accelerating deal timelines. |
Takeaway
Whether RWI is an appropriate solution for smaller deals depends on a number of factors, but perhaps the most important is the cost of RWI for meaningful protection. For example, a common baseline coverage limit is 10%, with larger deals trending below 10%.(6) However, in a $10M deal, 10% results in a $1M coverage policy at a $20-30K premium with $25-50K in underwriting fees that may not offer meaningful protection. Such deals, however, may consider a higher coverage limit for more protection, depending on the circumstances, like when a specific breach would materially affect that deal’s value. Ultimately, leveraging RWI for smaller deals today requires a sophisticated understanding of the current market and the nuances of the transaction. If you have any questions about how you can effectively incorporate RWI into your deal, please contact me at smigala@lavellelaw.com or (847) 705-7555. Thanks go to David Oh for helping me write this article.
End Notes:
(1) Mike Richmond, Reps & Warranties Insurance: Key Trends and Opportunities in Q2 2025, Horton (May 1, 2025), https://www.thehortongroup.com/resources/reps-warranties-insurance-key-trends-and-opportunities-in-q2-2025/ [https://perma.cc/SUT6-TDWZ].
(2) Jery Justice, Valuation Is an Opinion. Deal Structure Is Everything. ACG (June 3, 2026), https://www.aspirations-group.com/post/valuation-is-an-opinion-deal-structure-is-everything [https://perma.cc/5FYL-KGEN].
(3) Mike Edmons, Unlocking Value: How Representations & Warranties Coverage Protects Businesses, CRC Group (May 16, 2025), https://www.crcgroup.com/Tools-Intel/Specialty-Tools-Intel/unlocking-value-how-representations-warranties-coverage-protects-businesses [https://perma.cc/NR6N-5JKC].
(4) Christoph Totter, The 2026 R&W Insurance Carrier Report: 14 Carriers Compared by Premium, Coverage, Deal-Size Sweet Spot, CT Acquisitions (May 16, 2026), https://ctacquisitions.com/guides/rw-insurance-carrier-comparison-2026/ [https://perma.cc/UMW7-P6LK].
(5) Christoph Totter, How Much Does R&W Insurance Cost in 2026: Premium, Deductible, and Carrier Pricing for Private M&A, CT Acquisitions (May 2, 2026), https://ctacquisitions.com/how-much-does-rw-insurance-cost-2026/ [https://perma.cc/XXU4-TFX8]; Mike Richmond, RWI Q4 2025 Market Update, Horton (Oct. 30, 2025), https://www.thehortongroup.com/resources/rwi-q4-2025-market-update/ [https://perma.cc/QK2P-R6CC]; Reps & Warranties Insurance: Key Trends and Opportunities in Q2 2025, supra note 1; Emily Maier, Who Pays the RWI Premium and Retention in 2026? A Look at Evolving Market Norms, Gallagher, https://www.ajg.com/news-and-insights/who-pays-the-rwi-premium-and-retention-in-2026/#name-6D343F0B-58BB-4653-90FC-97CB2283800C [https://perma.cc/CFP8-5TCT?type=image] (last visited June 15, 2026).
(6) Emily Maier, Reps and Warranties Insurance Limits: Rethinking the 10% Rule, Gallagher, https://www.ajg.com/news-and-insights/rwi-limits-rethinking-the-10-rule/ [https://perma.cc/8HWM-MUUQ?type=image] (last visited June 15, 2026).
Attorney Steven Migala is a Shareholder of Lavelle Law, Ltd., leading its transactional practice groups, focusing on corporate, M&A, commercial real estate, and commercial lending matters. He authors the Banking and Business newsletter, which covers relevant topics in banking, business, securities, and M&A. He is a former chair of the Chicago Bar Association's Corporation and Business Law Committee and served as a member of various civic commissions and chamber of commerce boards.
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