The $12bn class that pays for itself: Gallagher’s Alistair Lester on M&A insurance

Gallagher’s CEO of Private Equity and M&A for EMEA, Alistair Lester, joined the Voice of Insurance podcast for a masterclass on one of insurance’s fastest-growing classes of business.

Most insurance is a grudge purchase, a cost whose value only shows up on the unhappy day a claim is made. M&A insurance is the rare exception. Here a client can spend a single pound to remove a twenty-pound problem, and see the return immediately in the price of a deal. That is why transaction insurance has grown roughly tenfold in a decade to an estimated $10bn-$12bn a year, rivalling cyber for the title of the industry’s highest-growth segment. In this episode, Lester explains what the class really is, where the next wave of growth sits, and why a hyper-competitive market must protect itself from its own success.

A broker’s class not just a lawyers’ club

Many assume M&A insurance is the preserve of ex-lawyers who drifted into underwriting. Lester is proof that traditional brokers can thrive in it: one of the rare people who actively chose insurance as a career, he joined the business that became Aon in 1996 and landed in a tiny, nascent M&A team. Tellingly, the innovation rarely starts on the underwriting side. It grew as clients and their lawyers began asking a simple question ‘can we insure this?’ which gave birth to warranty and indemnity (W&I) cover, known in the US as representations and warranties insurance.

What you’re actually buying

W&I is the core product, protecting against the unknowns in a deal, the risk that a seller’s promises turn out to be wrong. The fast-growing second pillar is tax insurance, which turns a known but uncertain tax exposure into certainty for the price of a premium, with contingency and litigation cover completing the toolkit. The economics are what make Lester evangelical. Rather than leaving money in escrow, accepting a price chip or deferring consideration, a seller can walk away with maximum day-one, unencumbered proceeds while the buyer keeps the security it needs.

“This is a part of insurance where… you can absolutely clearly show to a client that by investing in an insurance product… there is a direct, directly correlated return,” Lester said, calling it “the purest type of insurance” – cover that genuinely enables commercial transactions to happen.

A situation, not a solution

Lester’s biggest strategic point is that the industry defines itself too narrowly. Ask most people how insurance helps with M&A and they say ‘W&I’. And stop. “M&A is a situation, not a solution,” he said. A live deal can call on advisory work, due diligence, corporate insurance, employee benefits and at least seven or eight distinct products which, blended together, are genuinely powerful. Being pigeonholed into a single-product box sells the whole class short.

Where the next decade of growth is hiding

Penetration has climbed from 1-2% of deals a decade ago to 10-15% today, leaving enormous headroom. Roughly 75-80% of deals worldwide are worth under $10m, a segment the market has largely ignored on cost grounds and which Lester expects AI to finally unlock. Other frontiers excite him too: a deeper bridge between insurers and lenders, helping banks offer better terms by de-risking deals; tax insurance evolving into an annual corporate risk-management tool; and old products such as surety bonds redeployed to prove deal funding. The industry’s weakness, he notes, is doing something clever once and talking about it for five years instead of industrialising it.

A soft market with a duty to itself

Lester is candid that the market is ‘extremely soft’, with new capacity too often arriving with no better strategy than wanting a piece of the action. Claims experience is reassuring – notification rates of 20-30%, paid claims of just 5-10%, most settlements modest – but larger losses in known-risk lines such as tax and litigation have spooked some capital. His plea is that the market resists lumping very different products into one ‘transaction liability’ bucket, and prices for the long haul. “If the insurance industry is not sustainable… people can go back to doing M&A deals without using insurance,” he warned. A reminder that, unlike property or motor, this class is entirely optional.

The bigger picture

The thread running through Lester’s analysis is that M&A insurance succeeds only when the industry sells the situation, not the product. The winners over the next decade will reframe the conversation around deal outcomes, chase the small-deal frontier that AI is about to unlock, and differentiate by sector, geography and deal size rather than simply chasing premium. Above all, the class must protect its own long game because the moment buyers lose faith in it, they will happily go back to doing deals the old way.

The full episode goes deeper into claims, reinsurance treaties, systemic risk and the AI tools already being piloted. Listen to the podcast to hear the full story.