The adoption of representations and warranties insurance could mark a qualitative leap in the way transactions are structured, reducing friction and increasing the country’s competitiveness as an investment destination.
In recent years, the mergers and acquisitions (M&A) market has evolved significantly globally, not only in terms of volume or sophistication of transactions, but also in terms of the contractual and financial tools used to manage them. One of the most relevant—and until recently, little explored in Chile—is representations and warranties insurance (R&W insurance), which has begun to gain ground as a key instrument in the structuring of complex transactions.
This type of insurance covers losses that may arise if any of the representations made by the seller in a purchase agreement prove to be inaccurate or false. In other words, the insurer assumes the risk that traditionally fell on the parties through mechanisms such as withholdings, escrow deposits, or indemnification actions. This streamlines negotiations, reduces post-closing disputes, and protects the buyer from unexpected legal or financial contingencies.
In 2023, nearly 2,000 R&W policies were issued worldwide, involving more than $50 billion, according to Marsh data. In Latin America, however, only between 40 and 50 policies were purchased directly by local investors. In Chile, although still in its infancy, interest in this type of coverage has begun to grow, driven in particular by international investors with previous experience of its use in developed markets.
From a legal perspective, the expansion of this instrument represents both an opportunity and a challenge. On the one hand, it requires legal teams to incorporate new criteria into the drafting of warranty, indemnity, and liability limitation clauses. It also requires close coordination with due diligence teams, insurers, and financial advisors to structure the policy properly and avoid overlaps or gaps in coverage.
On the other hand, the development of the R&W insurance market in Chile could contribute to further professionalizing the M&A ecosystem, reducing friction in sensitive negotiations, and attracting new players to the local market, especially international private equity or venture capital funds, which are accustomed to operating with this type of mechanism.
In addition, the growing use of this type of insurance requires a rethinking of the role of the transactional lawyer. It is no longer just a matter of identifying risks, but also of actively participating in their management through alternative instruments. In this regard, knowledge of complex financial products and the ability to articulate innovative legal solutions will be increasingly valued.
In conclusion, the rise of representations and warranties insurance represents a global trend that is beginning to impact the M&A market in Chile. Its adoption could mark a qualitative leap in the way transactions are structured, reducing friction and increasing the country’s competitiveness as an investment destination. Chilean lawyers, therefore, have a strategic opportunity before them: to incorporate these tools into their repertoire and lead the design of structures that balance legal protection and commercial agility.
Written by:
Álvaro Rosenblut | Partner | arosenblut@az.cl
Raimundo Busquet | Associate Corporate and Business Group | rbusquet@az.cl
Source: The Legal Industry Reviews, Issue 22 No. 2. [See here]
