Last year was one that no one could have anticipated. At the start of the COVID-19 pandemic, there was an unprecedented global impact on the M&A market, which in turn affected the representations and warranties insurance business. While the uncertainty wrought by the pandemic led to many transactions initially being put on hold as they were re-evaluated or re-negotiated, the claims activity on representations and warranties policies never really slowed.

Key findings include:

• As of the end of 2020, representations and warranties insurers paid more than $500 million to Aon clients in North America since 2013, with almost $375 million of that amount being paid in 2019 and 2020.
• 28% of tax policies placed between 2013-2020 had a pre-claim notice of a general audit submitted by the policyholder. Notice of a formal claim (indicating a targeted review of a covered tax position arising from the audit or the beginning of a formal contest with the tax authority) was submitted on 7% of policies.
• Insurers reported paying 76% of representations and warranties claims on policies between 2013-2020 on a dollar-for-dollar basis, while 24% were paid on the basis of applying a multiple to damages. Half of the insurers surveyed believe that there has been a rise in the number of claims seeking multiplied damages in recent years.