Watch the M&A tail: claims flow on warranties’ policies suffer delay

Claims notifications on representations and warranties (R&W) policies have been increasingly delayed since the pandemic, leaving chances high that a burst of M&A activity in 2021 has yet to present much of its eventual insurance bill, analysts at global insurance brokerage  Marsh have claimed.

“In 2022, the time from policy inception to claim notification was longer than in prior years,” analysts warned. Only 40% of claims in 2022 came within one year of policy inception, down from 49% in the 2019-2021 period. Nearly all other timeframes saw an increase, the largest being for claims reported between 24 and 36 months out, now at 16% of the total.

The shift could be due to a drop in claims notified during 2021 when insureds may have been more focused on recovering from the COVID-19 pandemic, Marsh assumes.

But 2021 was the boom year in M&A, a key event set for eventual R&W claims, “leading many in the transactional risk insurance industry to predict that this would result in significant claims activity in 2022,” analysts wrote. But the expected surge “has not yet materialised.”

Claims notification in 2022 were a notable 25% above 2021 depressed levels.

Tax, compliance, and financial statements breaches have remained the top three types of breaches since 2019. The #1-ranked tax breaches and #2-ranked compliance breaches increased as a portion of the whole again in 2022. Financial statement breaches fell as a percentage of the total count, but still remain dominant by total claim size at 50% of the total.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.