DealLawyers.com Blog

Gallagher recently published an article tracking how the way buyers and sellers divide responsibility for Rep & Warranty Insurance premiums and retentions has evolved over the years. This excerpt summarizes how market practice with regard to premiums has changed since 2018:

If we step back to 2018-2019, RWI premium allocation was far more varied. Sellers often paid for the policy, or parties split the cost in what many practitioners saw as a “fairness-based” approach. But as the data clearly shows, that world is largely behind us.

By 2021, split premium structures had all but disappeared, and the market settled decisively into a new norm: Buyers cover the premium. Obviously, this trend aligns with a market that’s favorable to sellers. Since 2021, the market has evolved from seller-favorable to mixed, and premium payment is now highly dependent on the strength of the target.

Even today, sellers still pay occasionally — about 17% of the time as of 2025 — but the directional trend is unmistakable.

The article cites three reasons for the shift in payment responsibility over time – declining premiums, competitive deal dynamics, and sellers’ desire for a “clean exit.”

The article also points out that allocation of the retention has evolved as well. Initially, sellers were expected to have some “skin in the game,” and were frequently required to bear some or all of the loss until the retention was met. That’s much less common today, as pricing differences between “zero indemnity” deals and deals that contemplate partial seller indemnity have diminished, sellers have insisted on a true “walkaway,” and insurers have become more comfortable with low seller indemnity structures so long as they’re accompanied by quality disclosures.

– John Jenkins