APAC mirrors global surge in transactional risk claims

Claims rate has remained stable between 9% and 11% per deal from 2018 to 2023. 

Global transactional risk claims surged in 2023, with a significant increase in both the number and total payments. The evolving profile of claims under representations and warranties (R&W) policies, also known as warranty and indemnity (W&I) in some regions, is creating new uncertainties in the transactional risk insurance market. 

Despite ongoing demand and prolific underwriting, the full impact of these claims may not be evident for a few years, according to Marsh’s Global Transactional Risk Insurance Claims Report 2024.

Since 2018, insurers have paid over$1b to Marsh clients under transactional risk policies, with over$300m paid in 2023 alone. 

Key findings include an increase in both the frequency and severity of R&W claims globally, with some payments reaching hundreds of millions of dollars. There was a historic peak in claim notifications in 2023, up 17% from the previous year and 41% from 2021. 

The top breach types were tax, financial statements, and compliance, with financial statements breaches comprising 45% of total payments and tax breaches only 2%.

Claims activity in 2023 in Asia Pacific (APAC) mirrored previous years, with a clear correlation between the number of transactions and reported claims. 

Approximately $10m was paid on W&I claims in the Pacific sub-region in 2023, indicating market stabilisation. 

Clients in APAC are increasingly considering claims processes and track records when choosing insurers. Insurers prioritising client claims experiences are expected to secure recommendations as preferred insurers.

In Asia, there was a slight decrease in claim notifications in 2023 compared to 2022, with notifications spread across more deals. 

This trend is consistent with the record 147 transactional risk placements made by Marsh in the region in 2023. The claim rate has remained stable between 9% and 11% per deal from 2018 to 2023. 

Australia and New Zealand recorded low claim frequency in 2023, with only one notification for a breach of the information and disclosure warranty.

Tax breaches were the top driver of losses in APAC in 2023, accounting for 32% of W&I claim notifications. Other breach categories, such as compliance, employment, and material contracts, also increased. 

Claims handling has evolved to provide better guidance on warranty triggers and adjust warranties effectively.

The timing of claim notifications remained consistent, with most claims filed between the second and third year of a policy’s lifespan. 

The volume of claims in the latter period decreased by 22% from 2022. This suggests the value of a three-year general warranty coverage period, as risks can arise both immediately after an acquisition and later due to prolonged tax audit processes.

In 2023, 77% of claims were not expected to breach retention levels. Factors influencing loss severity include the quality of diligence, client orientation against litigation, and the predominance of tax claims with manageable losses. 

The absence of financial statement breaches in 2023 may lead to fewer payments, as these breaches are typically high-severity. As the Asia Pacific market matures, it is expected to align more closely with global severity figures, with larger losses anticipated in the coming years.