Blog
RWI Limits: Rethinking the 10% Rule
Emily Maier
Nov 11, 2025
“How much limit should we buy?” This is a perennial question in the world of reps and warranties insurance (RWI). For years, the shorthand answer has been: 10% of enterprise value. But as with many rules of thumb, it’s worth asking—does it still hold up?
The short answer: not always. The longer answer? It depends—on deal size, risk profile, and the nature of the reps themselves.
What Limits Are Insureds Actually Buying?
We recently analyzed purchasing behavior across a wide range of deal sizes. The data confirms what we’ve long suspected: buyers are moving beyond the 10% rule. Private equity and strategic buyers approach limits analysis differently, but both are tailoring their limits based on deal-specific considerations, not just a formula. This shift reflects a more sophisticated understanding of risk and a desire to align coverage with actual exposure.
Why Deal Size Matters
Let’s start with the bookends.
Smaller deals—say, around $40 million—often need more than 10%. A $4 million policy may technically follow the rule, but it may not offer meaningful protection. For a modest premium increase, buyers can often secure significantly more coverage, and that extra protection can be critical if a claim arises. In these cases, the marginal cost of additional coverage is often outweighed by the potential benefit.
Larger deals—say, $1 billion or more—tend to trend below 10%. A $100 million policy may be excessive depending on the risk profile. Our benchmarking shows that buyers are already adjusting expectations accordingly. These buyers are more likely to assess the nature of the reps and the likelihood of breaches before deciding on coverage levels.
What Claims Data Tells Us
Our team conducted extensive research on reps and warranties insurance claims to further understand limits. Note that for RWI, each policy is bespoke, and breaches often span multiple reps. Add in geographic differences (US vs. Europe) and a wide range of deal sizes being averaged, and it’s clear that claim interpretation is an art, not a science. Specific thanks to Stacey Hammer, Lauren Trapp, and Nallely Rivera for analyzing the data to determine common themes.
Below are some patterns we noticed:
Top Breach Categories
| The top five breach categories are: |
|
|
|
|
|
Financial statement and material contract breaches tend to be the most severe—often tied to EBITDA. A claim tied to EBITDA is more likely to be subject to multiples: “I paid 10 times EBITDA for this company; the breach fundamentally alters my EBITDA and therefore I require 10 times the value of the breach.” While this approach also applies to IP breaches, they are less frequent and so don’t make it into our worst offenders list. The severity of these breaches underscores the importance of understanding which reps are most likely to be implicated in a claim.
Deal Size and Claim Severity
Here’s where things get interesting.
The frequency of breaches is relatively consistent across deal sizes. However, severity varies. Deals under $150 million see more claims, but those claims tend to come in as a lower percentage of the limit purchased, as they are typically less severe. Deals over $750 million see fewer claims—but those claims often result in higher payouts as a percentage of limits.
And yes, another prevailing misconception is that bigger deals are “better diligenced” and less likely to result in a claim. The data shows this is not always the case; a lot of claims coming under financial representations have had outside due diligence by extremely reputable firms.
Are Buyers Over-Insuring?
Not really. About 15%–20% of paid claims result in full limits of loss. That suggests that in some cases, higher limits would have led to higher recovery. This data point is critical—it shows that while some buyers may appear to be over-insuring, they are actually positioning themselves to recover more in the event of a significant breach.
Beyond the Numbers
The real takeaway? Context matters.
Some deals hinge on a few key reps—think IP-heavy transactions or deals driven by a single customer contract. In those cases, higher limits make sense. A breach could materially impact deal value.
Buyers need to assess which reps are most critical to the transaction and consider how a breach would affect the overall deal economics.
Other factors—like company history, buyer/seller familiarity, and prior joint ventures—also play a role. We help clients weigh both statistical and situational factors when evaluating limits. For example, a company with a long operating history and stable financials may present less risk than a startup with a limited track record.
The Bottom Line
The 10% rule is a useful starting point—but it’s by no means a one-size-fits-all solution. The best approach is thoughtful, data-informed, and tailored to the specifics of the deal. Buyers should consider deal size, rep concentration, historical claims data, and qualitative factors when determining appropriate limits.
Work with a broker who understands the nuances. That’s how you get the protection you need without overpaying. A broker who can interpret claims data, understand deal dynamics, and provide strategic guidance is an invaluable partner in navigating the complexities of reps and warranties insurance.
Ultimately, the goal is to strike the right balance between cost and coverage. By moving beyond the 10% rule and embracing a more nuanced approach, buyers can ensure they are adequately protected while optimizing their insurance spend.
Disclaimer: The information contained herein is offered as insurance industry guidance and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer financial, tax, legal or client-specific insurance or risk management advice. General insurance descriptions contained herein do not include complete insurance policy definitions, terms, and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis.
Author
Table of Contents
