Why W&I insurance is such a good idea for Chinese investors

W&I insurances are becoming more and more popular, as they allow both buyers and sellers to avoid the risks associated with company transactions. In a book chapter, which you can download free of charge, Thomas Wang and Stephan Kuntner explain the unique benefits that W&I insurance can offer Chinese investors.

China has been investing in Europe and, in particular, in Germany for many years. One prominent example is the 2016 acquisition of Bavarian robot manufacturer KUKA. Many other medium-sized businesses are also attractive to Chinese investors. These investments are supported through the Chinese Go Out policy and the associated aim of becoming a global market leader in high-tech industries. Experts predict that Chinese authorities will continue to politically and financially support foreign investment.

A warranty and indemnity (W&I) insurance can be an effective, strategic tool for investments like these. W&I insurance covers the guarantees and warranties, among other things, resulting from a purchase agreement.  And cover like this represents a win–win situation: the seller can limit or even entirely eliminate their liability, whilst the buyer has a reliable warranty and is insured against any unwelcome surprises. Both the buyer and the seller can obtain this type of cover, though it’s almost always the buyer who acquires it these days. 

For Chinese investors, comprehensive risk cover is key when it comes to fulfilling the government’s requirements for foreign investments. Chinese authorities even go so far as to expressly recommend that companies purchase W&I insurance for foreign transactions.

W&I insurance also offers Chinese investors a key advantage over competitors: it’s usually the guarantees and warranties that require the most negotiating for transactions. And by removing these critical points from the negotiations, you can simplify and accelerate negotiations significantly.

Funk China experts Thomas Wang and Stephan Kuntner offer comprehensive background information about W&I insurance in the context of Chinese investments in their book chapter titled ‘Insurance & Innovation 2019’. We’ll be happy to provide you with the article ‘W&I insurance as strategic advantage for Chinese investors in M&A transactions’ as a PDF free of charge. Simply register here: 

02/10/2019

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