Warranty and indemnity insurance in Poland and Central and Eastern Europe: adoption, challenges and structural implications
Mirosław Fiałek
MFW Fiałek, Warsaw
Paweł Siwiec
MFW Fiałek, Warsaw
Introduction
Warranty and indemnity (W&I) insurance has undergone a significant transformation in Poland over the past decade. Originally a product associated exclusively with the most sophisticated cross-border transactions, it has progressively become a recognised instrument in the Polish mergers and acquisitions (M&A) toolkit. The growing number of M&A transactions in Poland, their increasing complexity and rising awareness among deal participants of the advantages of insuring against transactional risk have all contributed to this shift. Whether W&I can yet be described as a true market standard in Poland significantly depends, however, on which segment of the market one examines.
This article considers the trajectory of W&I adoption in Poland and the wider Central and Eastern Europe (CEE) region, the persistent gap between private equity-driven and mid-market transactions, the distinctive underwriting challenges posed by local legal and regulatory conditions and the fundamental changes that W&I introduces to the liability architecture of share purchase agreements.
Market development: Poland within the CEE context
W&I insurance was first adopted in Poland by private equity funds, which required a mechanism for releasing capital quickly following an exit and which used the product as a substitute for classical escrow arrangements. Over time, the instrument has spread to transactions involving state-owned companies and family-owned businesses, and, today, the majority of larger M&A transactions in Poland involve at least a preliminary assessment of whether W&I may be an appropriate form of protection.
A particularly notable feature of the Polish market is the significant improvement in insurer appetite. The gap between Poland and Western European markets in terms of insurer participation has in fact already closed, with a substantial and growing number of insurers now willing to consider Polish transactions, though not all are consistently active on the market, which is a marked change from only a few years ago. This stands in contrast to other CEE jurisdictions, where historically the insurer appetite was considerably more limited.
At the regional level, the CEE market as a whole has historically trailed behind Western Europe. It is widely acknowledged among commentators that the CEE region has lagged behind other Western jurisdictions in terms of the use of W&I insurance in transactions, although the pace of change in recent years has been considerable. The most recent market data point to accelerating convergence: the 2025 HWF Partners W&I Market Claims Study, based on data from 24 insurers and 18,563 policies placed globally (excluding North America) since 2016, confirms that W&I is now an established mainstream product in Western Europe, with increasing acceptance in Italy, CEE and the Baltics also contributing to strong market growth, with 2025 predicted to exceed the record-breaking levels of adoption recorded in 2024.
Private equity transactions versus the mid-market: a persistent divide
The single most important structural observation about the Polish W&I market is the divergence between its two principal segments.
In transactions led by private equity funds, W&I has become effectively mandatory in auction processes above a certain deal value. Sell-side private equity funds are primarily motivated by the desire for a clean exit, the ability to release sale proceeds immediately at closing rather than holding them in escrow for months or longer. On the buy side, a W&I policy can provide broader protection than the underlying share purchase agreement alone and increases buyer comfort when investing in an unfamiliar jurisdiction. There is also a competitive dimension: a bidder able to offer seller-friendly liability terms backed by a policy, so-called ‘sweetening the bid’, may offer counterparties a near-zero recourse structure, gaining a material advantage in a competitive auction process.
In the mid-market, where sellers are typically founders or family business owners transacting for the first time, the picture remains fundamentally different. W&I is still the exception rather than the rule. As noted by practitioners active in CEE, businesses and legal teams are accustomed to doing things the way they have done them before and, while W&I objectively provides simplification, it is not perceived as such by sellers unfamiliar with the process. Beyond the familiarity barrier, cost is a structural constraint: for lower-value transactions, the cost of the premium is typically justified only in specific circumstances, for instance, where the buyer is acquiring a distressed company, where the individual seller has limited financial standing to back warranty claims or where multiple sellers are involved and recourse against each would be impractical.
A further process-related barrier deserves mentioning, namely where W&I is not planned from the outset of a transaction, but is instead introduced at a later stage, it can be perceived by clients as being forced into the proceedings by the opposing party, and as introducing a third party into what was already an advanced and confidential negotiation. This perception reinforces the importance of timing, engaging the insurer and broker well in advance of the anticipated signing date (ideally no later than four weeks prior) is considered best practice by market participants in the region.
The mid-market nonetheless represents the most significant untapped growth opportunity for the Polish W&I market. It is widely anticipated among market participants that the product’s popularity will continue to grow, and that with increasing competition among insurance brokers, it will become more accessible to transaction parties as prices decrease.
Underwriting challenges specific to Poland and CEE
Poland and the wider CEE region present underwriters with a set of challenges that are either absent or less pronounced in Western European markets.
Tax risk is the most consistently cited concern. Standard market exclusions in CEE transactions regularly cover transfer pricing risks, permanent establishment risks, secondary tax liabilities and fines and penalties. It is generally recognised that known tax risks are generally not covered, and that the scope of coverage is directly correlated with the quality and depth of the tax due diligence conducted. The broader claims environment reflects this: across Europe, the Middle East and Africa (EMEA), tax remains a leading category of W&I claims notifications.
Labour law presents a further local peculiarity. The widespread use of business-to-business (B2B) (self-employment) arrangements as a substitute for employment contracts creates a well-documented risk of reclassification by the Social Insurance Institution (Zakład Ubezpieczeń Społecznych or ZUS) or the National Labour Inspectorate, with the associated backdated social contribution liabilities, a standard concern in Polish underwriting assessments. In light of recent legislative discussions and regulatory developments concerning the reclassification of B2B arrangements, which, although ultimately less far reaching than initially contemplated, have nonetheless heightened awareness of the issue, the perceived risk in this area may be expected to increase, potentially rendering such exposures more difficult to insure.
Environmental liability arising from legacy industrial contamination and historic waste sites is a recurrent issue, particularly in transactions involving manufacturing or real estate assets. Pre-existing pollution is generally treated as a known risk and, therefore, falls outside the scope of W&I coverage. Insurers frequently require a separate environmental policy as a precondition for underwriting.
From a process perspective, the quality of due diligence is a critical determinant of the coverage available. Insurers require full-scope legal, financial and tax due diligence. Any material limitation in scope may result in exclusions from coverage. In CEE mid-market transactions, where due diligence is often abbreviated, this creates a direct constraint on the availability of meaningful cover. The expertise of underwriters in local law also remains variable across the market: as noted by practitioners, ensuring that underwriters have genuine familiarity with Polish, Czech or Romanian law, rather than approaching CEE as a uniform bloc, is important for efficient and commercially reasonable underwriting outcomes.
Structural impact on liability architecture in the share purchase agreement
The introduction of a W&I policy fundamentally reconfigures the liability framework of the share purchase agreement. Under a buy-side policy, the insurer assumes liability for breaches of the seller’s warranties, allowing the buyer to claim directly against the insurer rather than the seller.
In a conventional share purchase agreement without W&I insurance, the seller’s liability cap for warranty breaches typically falls in the range of 15 to 40 per cent of the purchase price, depending on the nature of the transaction and the relative bargaining power of the parties. Where a buy-side W&I policy is in place, this cap may fall to a nominal or symbolic level, with the seller’s exposure limited essentially to cases of fraud. The insured limit, representing the insurer’s maximum exposure, most commonly corresponds to 20 to 40 per cent of the transaction value, with the premium payable as a single upfront payment, typically ranging between 0.6 per cent and 2 per cent of the sum insured, although the precise economics vary considerably by transaction.
From a claims perspective, the 2025 HWF data confirm a policy notification rate of 12.46 per cent across the full global data pool (excluding North America), somewhat higher than the 11.64 per cent reported in the previous year’s survey, indicating a consistent and maturing claims environment. Notably, over half (52.44 per cent) of all claims notifications arise from the aggregated categories of seller fraud, non-disclosure and third-party claims, risks that are, in many cases, difficult to detect through conventional due diligence processes. This finding underscores the core rationale for W&I: protection against residual risk that persists notwithstanding a rigorous pre-transaction investigation.
Financial sponsors remain the most active claimants, accounting for 49.83 per cent of notifications but receiving 60.31 per cent of total claims payments, a disparity that reflects both their market sophistication and their commercial leverage as repeat users of the product. The claims experience in CEE is also maturing, with the region recording its first W&I claim payments in recent years, a significant milestone in the development of the market.
Where fraud or wilful misrepresentation is established, the insurer retains subrogation rights against the responsible party. The growing frequency of claims across the EMEA region, including in CEE, is a meaningful indicator of market maturity. Policyholders are increasingly aware of their coverage and are willing to exercise their rights.
Conclusions
The data discussed in this article confirms that W&I insurance has entered a new phase of development in Poland and the wider CEE region. Poland has emerged as the most mature W&I market within CEE, with insurer appetite now broadly comparable to that of Western European markets for transactions of the appropriate size. The product is well established in private equity-led transactions and is increasingly discussed, if not yet routinely adopted, in a wider range of deals. The mid-market gap remains the defining challenge for continued growth, requiring sustained efforts in regard to market education, more flexible product structures for smaller transactions and continued competition among brokers and insurers to reduce pricing. With a maturing claims environment and accelerating adoption across the region, the trajectory for the years ahead is one of continued expansion, tempered by the need for greater sophistication in policy structuring and a more developed body of claims jurisprudence in CEE jurisdictions.