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Warranty and indemnity insurance
Yes, smaller UK business sales can often use warranty and indemnity insurance, provided the deal has proper due diligence, a written sale agreement with warranties and a disclosure letter. Whether it is worth buying depends on the deal size, the quality of the information and how much risk the seller is willing to keep.
Part of: Warranty and indemnity insurance explained
In short
W&I insurance developed on larger deals, but many insurers will also look at smaller transactions, including owner-managed businesses. There is no legal minimum deal size; the practical limits are the insurer's minimum premium and whether the due diligence is thorough enough to underwrite. Insurers usually need financial, tax and legal due diligence reports, the draft SPA and the disclosure letter. The process can often run in two to three weeks once the reports are ready, though timings vary. Where W&I does not fit, sellers and buyers often fall back on escrow, deferred consideration or a negotiated cap. Cover is subject to the insurer's acceptance and the policy terms.
Often, yes. Warranty and indemnity insurance covers loss from a breach of the warranties a seller gives in the sale and purchase agreement (SPA). The policy does not care whether the buyer is a listed group or a local competitor; what it needs is a deal it can underwrite.
There is no rule setting a minimum deal value. In practice the limits come from the market. Insurers have minimum premiums and fixed underwriting costs, so on a very small deal the insurance may cost more than the protection is worth to the parties. Appetite for smaller deals varies between insurers and over time, so any threshold you read online should be treated as a rough guide only. A broker can tell you whether your deal is likely to attract terms before you spend money on the process.
Small deals are also more likely to involve an owner-manager who stays on, a buyer who knows the sector, and a seller who wants certainty that the money received is theirs to keep. Those are the situations where a buy-side policy can help most; see buy-side vs sell-side W&I.
Underwriters insure the process, not just the target. On a smaller deal they commonly look for:
Gaps in these areas do not always rule out cover, but they commonly lead to exclusions. Our page on due diligence and W&I underwriting goes through what underwriters read.
Timings below are typical rather than fixed, and depend on how ready the reports and documents are.
| Stage | What happens | Typical timing |
|---|---|---|
| Approach the market | The broker sends the deal summary, draft SPA and information on the target to insurers | A few days |
| Indicative terms | Insurers set out their proposed limit, retention, likely exclusions and conditions | Often within a week |
| Choose an insurer | Buyer (or seller) selects terms; the insurer is given access to the data room and reports | Same week |
| Underwriting | The insurer reviews the reports, raises questions and holds an underwriting call with the buyer and advisers | Often one to two weeks |
| Signing and completion | The policy is bound at signing; a no claims declaration is usually given at signing and again at completion | In line with the deal timetable |
The most common cause of delay on smaller deals is late or incomplete due diligence. Starting the W&I conversation when the reports are commissioned, rather than when they are finished, usually saves time.
Illustrative: a founder sells a specialist engineering firm to a larger competitor. The buyer wants protection beyond the founder’s agreed cap but does not want to hold back part of the price, because the founder will run the business for three years. A buy-side policy lets the buyer claim against the insurer rather than its new managing director, while specific known issues stay with a separate indemnity.
Where the economics or the information do not support a policy, parties commonly use traditional tools instead: a retention or escrow of part of the price, deferred or earn-out consideration that can be set off against claims, a lower seller cap with a de minimis threshold, or specific indemnities for known risks. These can be combined. Your solicitor will advise on the SPA mechanics; a broker can tell you whether insurance would change the negotiation. For other insurance points on a sale, see insurance when selling your business and key person insurance for founders.
Apex arranges warranty and indemnity (W&I) and M&A insurance. A broker reads each enquiry and comes back with options; there is no fee for a quote, and cover is subject to the insurer’s acceptance and the policy terms. To quote we need the target’s business activities, turnover, location and claims history, plus the deal value and structure, the draft SPA, which due diligence reports have been commissioned, the disclosure letter (or its status) and the timetable. Start with warranty and indemnity insurance explained.
There is no legal minimum. In practice, insurers have minimum premiums and underwriting costs, so very small deals may not be economic to insure. Appetite for smaller transactions varies between insurers, so it is worth asking a broker early whether your deal is likely to attract terms before commissioning the whole process.
Often around two to three weeks from approaching insurers to binding the policy at signing, provided the due diligence reports and the draft SPA are ready. Indicative terms can come back within days. Delays usually come from late or incomplete diligence, so involve the broker when the reports are commissioned.
Insurers commonly expect independent financial, tax and legal due diligence. Lighter or red flag reports may be accepted, but cover is often limited to the areas that were properly examined, and anything left out may be excluded. Unaudited accounts usually mean the financial diligence carries more weight.
Often, yes. Many small companies are exempt from audit, and underwriters know that. They will typically rely more on the financial due diligence and may ask more questions about the accounts warranties. Weak financial information can lead to narrower cover or exclusions rather than an outright refusal.
Common alternatives include holding part of the price in escrow or retention, deferred or earn-out consideration that can be set off against claims, a negotiated seller cap and specific indemnities for known risks. Your solicitor will advise on the drafting; these tools are often combined.
Tell us what your business does, your turnover and any claims. A broker reads every enquiry and comes back with options. No fee for a quote. Or call 0117 325 0027.
Start a commercial enquiry Request a callbackApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.
