Why awareness of tax insurance varies globally

The mergers and acquisitions (M&A) insurance world is a specialised area of cover that facilitates the smooth running of deals. In some countries – the UK, for example – it is now a standard tool to manage risk in an M&A deal. In other emerging market jurisdictions, however, it is virtually unknown.

Why is awareness of M&A insurance in one jurisdiction common knowledge, when it is not in another? Different regulatory and political environments in different countries and sectors require businesses to mitigate a range of different risks.

Tax insurance – a specialised branch within the broader M&A insurance market – has become an increasingly valuable tool for mitigating uncertainty in transactions and restructurings. In mature markets, such as the UK, US and Europe, it is now a well-established component of deal structuring. However, in emerging markets, the level of awareness, sophistication and pricing of tax insurance varies significantly.

Understanding why tax insurance is embraced in some countries but barely recognised in others requires a look at how local legal, regulatory and cultural factors shape both market confidence and insurer appetite. The key drivers include the maturity of local insurance markets, the perceived reliability of tax authorities, the consistency of court outcomes, and the level of awareness among advisors and clients.

Latin America

Across Latin America, awareness of tax and M&A insurance products is increasing, particularly as cross-border investors seek greater certainty in transactions. However, adoption remains uneven and highly dependent on the maturity of each country’s legal and regulatory environment.

In markets such as Mexico, Chile and Colombia, insurers are cautiously optimistic. These jurisdictions have seen a rise in the number of policies placed in recent years, supported by more predictable tax systems and a growing track record of successfully insured deals. Underwriters are beginning to see the region can offer sustainable business opportunities, even if individual transactions still carry significant complexity.

In Brazil, however, premiums remain among the highest in the world – typically between 10% and 20% of the limit of liability, compared to 0.8% to 1.5% in the UK and 1% to 2% in Spain.

The reasons for this are deeply rooted in Brazil’s institutional landscape. The country’s tax system is highly complex, with thousands of overlapping rules at federal, state and municipal levels. This complexity leads to frequent disputes and an aggressive stance by the tax authorities. Litigation is common, and cases can take years to resolve.

From an insurer’s perspective, this creates uncertainty that is difficult to price. Compounding this challenge is the limited claims data available for underwriters to model their risk exposure accurately. As a result, pricing remains conservative.

However, there are signs of positive change. As more risks are successfully placed and underwriters build a track record in Brazil, market confidence will increase, and pricing should normalise. This pattern has already been seen in other Latin American countries such as Chile and Mexico, where premiums have declined over time as insurers became more familiar with local dynamics.

Iberia

Spain and Portugal offer a useful case study of how quickly a market can evolve once confidence and awareness take hold.

In Spain, tax insurance has undergone a dramatic transformation over the past decade. Once viewed with scepticism, the product is now widely accepted and actively used, particularly in M&A transactions involving private equity investors. Today, around 70% of Spanish M&A transactions use some form of warranty & indemnity (W&I) or tax insurance.

This shift began with private equity firms seeking to protect investments against potential tax exposures. As familiarity grew and insurers demonstrated their reliability (notably through a relatively high claims payment ratio of around 25%), confidence spread across the market.

In Portugal, awareness of W&I insurance is increasing, but tax insurance remains a nascent product. Local dealmakers often take a reactive approach – seeking cover only once a tax inspection has been initiated. This significantly increases underwriting difficulty and drives up premiums, sometimes from 2% to 4% to 5% to 10%.

Greater education among local advisors, combined with international insurers’ growing interest in Iberia as a regional hub, could accelerate the adoption of proactive tax risk management through insurance.

India

India represents another evolving market with strong potential. The growth in cross-border M&A activity, combined with a reform-driven regulatory environment, has driven a surge in interest in both W&I and tax liability insurance.

While still developing, the Indian market benefits from a growing number of insurers establishing onshore entities within GIFT City, enabling local issuance under Indian regulation, and increasing comfort among global investors in using insurance to address indirect tax, capital gains and transfer pricing exposures.

However, challenges remain, including complex foreign exchange rules and limited local underwriting capacity. As regulatory frameworks stabilise and deal volumes rise, India is expected to become one of Asia’s most dynamic tax insurance markets.

Towards predictability

Ultimately, the differences in tax insurance uptake and pricing across jurisdictions stem from the same core factors: confidence in the predictability of local tax authorities, depth of underwriting experience, and market education and advisor engagement.

As more risks are insured – and insurers demonstrate reliability through fair and prompt claims handling – pricing should stabilise, and adoption increase globally.

Tax insurance, once a niche solution, is rapidly becoming an essential tool in cross-border M&A and corporate restructuring, helping businesses manage uncertainty in an increasingly complex international tax landscape.

The drivers behind the differences in pickup of specialist M&A insurance products across the world range can be for a multitude of reasons, but the main crux of the matter is the market’s confidence in using these insurance products. There is no magic way to break the cycle of low confidence in the market, but greater pickup through greater awareness is a must.

Camila Carvalho is associate director, M&A and transactional risks, at Factor Risk Management