Why W&I Is Moving Into the Indian Deal Mainstream
For most of the time that warranty and indemnity (W&I) insurance has existed in India, it has been a product for the top of the market: large cross-border buyouts, private-equity exits where the financial sponsor wanted a clean break, and deals advised by global firms who knew the product from other jurisdictions. The mid-market domestic deal, the strategic acquisition of an Indian business by an Indian acquirer, the founder selling to a domestic buyer, typically did its risk allocation the old way, through extensive warranties, an indemnity from the seller and an escrow or holdback to back it.
That is changing. W&I, also called representations and warranties insurance, is moving from a niche product confined to the largest deals into something closer to standard deal infrastructure for mid-market Indian M&A, driven by a more sophisticated dealmaking culture, the continued strength of private-equity and strategic deal activity, and a growing recognition by buyers and sellers alike of what the cover does for deal dynamics. The product is on a clear upward adoption trajectory in the Indian market, and risk and corporate-development teams who have not yet dealt with it are increasingly likely to encounter it on their next transaction.
The reason the product is spreading is that it solves a problem every negotiated deal has. In a sale, the seller gives the buyer a long list of warranties, statements about the target business, its accounts, its tax position, its contracts, its litigation, its compliance, and an indemnity that backs them. If a warranty turns out to be untrue and the buyer suffers loss, the buyer claims against the seller. But this classic structure pulls the two sides in opposite directions: the buyer wants broad warranties, a high cap and a long survival period backed by a large escrow; the seller wants a clean exit, its sale proceeds in hand, and no lingering contingent liability. W&I insurance breaks that deadlock by transferring the warranty risk to an insurer.
What W&I Actually Covers, and Buy-Side Versus Sell-Side
W&I insurance covers the financial loss a party suffers from a breach of the warranties (and often the tax indemnity and certain other indemnities) given in the transaction documents, the share purchase agreement or business transfer agreement. It is a form of general insurance, and it can be arranged by either the buyer or the seller, though the structures differ.
Buy-side policy (the common structure). In the more common arrangement, the buyer takes out the policy and the insurer's indemnity runs to the buyer. If a warranty is breached and the buyer suffers loss, the buyer claims against the insurer rather than chasing the seller. This is powerful because it lets the deal be structured with a low or even nominal seller cap and little or no escrow, the seller exits cleanly, while the buyer retains real recourse, against an insurer with a strong balance sheet rather than against a seller who may have distributed the proceeds. The buy-side policy can also, in some respects, give the buyer broader or longer cover than the underlying warranties, because the policy survival periods and limits are negotiated with the insurer.
Sell-side policy. Less commonly, the seller takes out the policy to cover its own liability for warranty breaches. Here the seller still faces the buyer's claim under the contract, but the insurer reimburses the seller for what it has to pay. Sell-side cover protects the seller's proceeds but does not give the buyer the direct-recourse advantages of a buy-side policy, which is why buy-side structures dominate.
What the policy typically covers and excludes:
- Covered: breaches of the business warranties (accounts, assets, contracts, employment, litigation, compliance, IP, and so on) that were not known to the buyer and were properly disclosed against, plus, frequently, the tax indemnity.
- Excluded: matters actually known to the relevant deal team, matters specifically disclosed in the disclosure letter and data room, purchase-price adjustments, forward-looking statements and projections, and certain inherently uninsurable risks. Identified, known issues are dealt with by specific indemnities or contingent risk cover, not by the general W&I policy.
Synthetic Warranties, Tax Liability Cover and the Underwriting Process
Three features of W&I are worth understanding in detail because they are where the product's flexibility and its limits both show up: synthetic warranties, tax liability cover, and the underwriting process that produces the policy.
Synthetic warranties. In a normal buy-side W&I deal the policy covers the warranties given by the seller in the SPA. But in some situations, particularly where the seller is unwilling or unable to give a full warranty set (a distressed seller, an insolvency sale, a fund that will not stand behind warranties post-exit), the policy can provide synthetic warranties: a set of warranties given not by the seller but constructed directly between the buyer and the insurer, underwritten on the back of the buyer's diligence. Synthetic cover lets a deal proceed with the buyer protected even where the seller gives little or nothing, though insurers underwrite synthetic warranties more cautiously and the diligence has to carry more weight.
Tax liability cover. W&I commonly extends to the general tax indemnity in the SPA, covering the buyer for pre-completion tax liabilities of the target that crystallise after the deal. But this is distinct from tax liability (or tax opinion) insurance, a related but separate transactional-risk product that insures a specific, identified tax risk, a particular uncertain tax position the parties know about, where W&I (which excludes known issues) cannot help. Indian deals frequently throw up identified tax uncertainties, and the availability of standalone tax liability cover to ring-fence a known tax exposure is an increasingly important part of the transactional-risk toolkit alongside W&I.
The underwriting process. W&I underwriting is fast but demanding, and it runs alongside the deal:
- Submission and quotes: the broker submits the draft SPA, the information memorandum and the diligence scope to insurers, who provide non-binding indication letters with pricing, the proposed retention (deductible) and high-level exclusions.
- Selection and underwriting fee: the buyer selects an insurer and pays an underwriting fee for the insurer to do its detailed work.
- Underwriting call and diligence review: the insurer reviews the buyer's due-diligence reports (legal, financial, tax) and holds an underwriting call with the deal team to probe the diligence and the disclosures. The quality of the diligence directly drives the breadth of cover and the exclusions.
- Policy negotiation and signing: the policy, the retention, the limit, the survival periods and the specific exclusions are negotiated and the policy incepts at signing or completion.
The retention (a deductible below which the buyer bears loss), the policy limit, the de minimis, and the list of specific exclusions arising from the diligence are the commercial heart of the policy, and they are negotiated, not fixed.
How Buyers and Sellers Should Approach W&I as It Goes Mainstream
As W&I moves into the mid-market, more Indian buyers and sellers will meet it for the first time, and approaching it well makes the difference between a policy that genuinely transfers risk and one that disappoints when a claim arises.
For buyers. Treat W&I as part of the deal structure from early on, not as an afterthought bolted on near signing. Build the diligence to W&I standards from the start, because the policy's breadth depends on the diligence: a thin or rushed diligence produces a policy riddled with exclusions and is poor value. Engage the W&I process in parallel with negotiation so the insurer's underwriting call and the SPA negotiation inform each other. Scrutinise the exclusions hard, since the value of the policy is what it covers after the exclusions, not the headline limit, and pay attention to the survival periods and the retention. And remember that known issues, the ones diligence actually finds, are dealt with by specific indemnities or contingent-risk and tax-liability cover, not by the general W&I policy.
For sellers. Understand that W&I is the mechanism that lets you exit cleanly: a buyer with a buy-side policy can accept a low warranty cap and little or no escrow because its recourse runs to the insurer, so flagging early that the deal will be insured can be a negotiating advantage. But do not treat W&I as a licence to give warranties carelessly: insurers exclude what is known and disclosed, and a seller that fails to disclose properly can still face an uninsured claim, and conduct that amounts to fraud is excluded from cover entirely.
For both sides. W&I is one product in a wider transactional-risk toolkit that also includes tax liability insurance for identified tax risks and contingent-risk cover for specific identified exposures such as litigation or title. A sophisticated deal uses the right tool for each risk: W&I for the unknown warranty risk, tax liability cover for the known tax uncertainty, contingent cover for the identified exposure.
Getting all of this right depends on understanding, and comparing, what the W&I and related transactional-risk policies actually say, the exclusions, the survival periods, the synthetic-warranty terms and the tax cover, across the insurers competing for the placement. The buyer's advisers should treat the wording comparison as a core part of the placement, matching the cover, exclusions and conditions of the W&I, tax-liability and contingent-risk options to the specifics of the deal rather than accepting a single insurer's standard form.