Representations and warranties insurance (RWI) has become the primary risk allocation tool in M&A transactions. Today, RWI is used in over 70% of private M&A transactions across all industry sectors, including in healthcare and life sciences. Although relatively new, the product has built a strong track record of easing deal negotiations, fostering stronger post-close partnerships between buyers and sellers and paying out significant proceeds on post-closing claims. Like all insurance products, RWI policies contain terms and conditions that require careful consideration in the context of the buyer’s broader insurance program. Buyers, who are typically the policyholders, must understand any exclusions and limitations and work closely with their insurance advisors to ensure they are protected from pre-closing liabilities that may arise following the transaction close.
RWI policies insure against breaches of the representations and warranties made by the seller to the buyer as of signing or closing. RWI underwriters evaluate the materiality, likelihood and potential impact of the various risks to an acquired business to determine whether additional terms, conditions, or exclusions — beyond those standard to RWI — are warranted. Brokers then review the insurer’s assessments to ensure they are reasonable and that any added conditions or exclusions are narrowly tailored to address the specific concerns or fact patterns. Transactions in certain industries, including those involving healthcare and life science businesses, often involve unique coverage issues that require nuanced solutions. For example:
These types of risks tend to be the very ones that buyers themselves are focused on when considering the viability of acquiring a potential target. Unsurprisingly, they are also areas where RWI underwriters exercise heightened scrutiny.
Compounding the issue, many regulatory actions — such as FDA audits, private payor disputes, or HIPAA enforcement — may arise months or years after closing, well beyond the diligence period and standard RWI policy term. This timing gap underscores the importance of a broader, integrated risk management strategy for healthcare and life science transactions.
At WTW, we take a multi-pronged approach to healthcare and life science M&A risks. Our M&A practice functions as a fully integrated platform, uniting transactional insurance specialists and healthcare experts to assess and mitigate risks from the outset.
At the early stages of the deal, WTW’s dedicated healthcare and life science brokers and project managers conduct a targeted risk assessment to identify areas that require specialized coverage — such as D&O, cyber, E&O, product liability and professional liability. These policies serve two purposes: first, they provide important tail coverage for risks not fully captured by RWI; second, they can be used during RWI underwriting to secure more favorable policy terms, including the narrowing or removal of exclusions.
Where appropriate, we also advise clients to:
WTW has worked with its insurance partners to develop bespoke insurance products tailored to the healthcare and life science M&A market, to name a few:
In healthcare and life science transactions, RWI is a valuable tool, but it works best as part of a coordinated, industry-specific approach. Buyers should make sure to engage industry-focused brokers who will go beyond the policy to identify and mitigate risks so they are protected to the extent the insurance market will bear post-closing. When RWI is combined with expert diligence, strategic indemnification and complementary insurance solutions, it can evolve from a stand-alone policy into a meaningful financial hedge supporting a well-rounded risk management strategy for buyers.
WTW hopes you found the general information provided here informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, WTW offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).
