The W&I trend: How AI is reshaping M&A risk and raising the bar

When Frank Hoogendijk started his legal career, warranty and indemnity (W&I) insurance was not widely used in Belgium. While W&I insurance has become market standard in other jurisdictions, including neighbouring countries, it was an edge case for big transactions.

Now? “It’s almost the default for large transactions, also in Belgium,” says Frank, founder at Found Advisory and former W&I insurance broker in London.

We sat down with Frank on the Clause and Effect podcast to unpack how W&I insurance works, when to use it, and why it’s becoming standard even in mid-market deals.

What W&I insurance actually does

At its core, W&I insurance transfers certain post-close risks from seller to insurer.

If a buyer later discovers a breach in the reps and warranties (say, a hidden litigation or IP ownership issue), the insurer, not the seller, pays out.

This smooths a major point of tension in deal negotiations: sellers want a clean exit, while buyers want airtight protection. W&I creates a third-party backstop.

“With W&I insurance there is no need for an escrow or hold-back,” Frank notes, “so the proceeds can be fully distributed to shareholders more quickly and put to use.”

Why W&I insurance is growing fast

Private equity funds love W&I insurance for the clean exit it offers. But the benefits don’t stop there:

• Buyers get recourse without torching relationships with retained management
• Insurers add scrutiny, which helps validate diligence quality
• Offers become more competitive in auction processes

“It’s not just about de-risking,” Frank adds. “In a tight process, showing that your bid can be backed by a W&I policy can give you the edge.”

What it costs and what makes a deal insurable

Premiums typically run between 1% and 1.5% of the insured amount, with a retention (your deductible) of 0.5% to 1%.

But not every deal qualifies.

“You need cooperative sellers, strong documentation, and minimal known risks,” Frank says. “If your deal touches high-risk sectors or certain geographies, like Latin America or parts of Africa, you’ll have a harder time.”

Common exclusions include:

• Known risks already disclosed (in the data room/disclosure letter)
• Purchase price adjustments or earnouts
• Environmental, cyber, transfer pricing risks or pension liabilities (unless explicitly underwritten)

Still, Frank says the market is evolving fast. “There are scenarios where insurers will now cover things they wouldn’t touch some years ago, especially if the diligence supports it.”

AI due diligence is making it easier to qualify

One misconception? That W&I insurance reduces the need for due diligence.

“In reality, it makes due diligence more important,” Frank says.

The quality of the due diligence performed is a key factor for insurers when deciding to underwrite deals . If your review is too light, or misses obvious gaps, you’ll face higher premiums, more exclusions, or flat-out rejection.

This is where AI platforms like Emma come in.

Emma surfaces red flags early, maps documents to your information request list, and structures clause-level summaries in seconds. That gives insurers the transparency they need, and buyers the speed they want.

“AI-assisted legal due diligence could be deemed by insurers as a plus,” Frank notes. “It’s more consistent, more complete, and it speeds up underwriting.”

Where AI-powered due diligence fits next

As AI due diligence tools mature, their role will extend beyond clause extraction.

Frank expects AI platforms such as Emma to keep raising diligence quality while shortening underwriting timelines. By surfacing additional issues across the entire data room and organising the findings for insurers, “you can have quicker underwriting timelines… instead of weeks or sometimes even months, things are sped up,” he explains.

“Eventually, I think clients will expect their law firms to use AI,” he says. “Because it delivers better insight, faster. And that’s what W&I insurers want too.”

Why deal certainty matters more than price

Yes, W&I insurance can boost valuation. But Frank points out something more fundamental: it boosts deal certainty.

“Deals fall apart when red flags show up too late or liabilities get buried in the fine print,” he says. “With W&I insurance and strong diligence, you minimize those surprises.”

It’s not just about assigning risk. It’s about building trust between buyer, seller, and everyone else involved.

One last piece of advice

If you’re heading into a due diligence next week, Frank’s advice is simple: focus on quality, not just urgency.

And if you have time to zoom out?

“Spend time on the important, not just the urgent,” he says. “That means investing in tools, processes, and knowledge, e.g. with regard to AI and W&I, that make you future-proof.”