How does W&I insurance actually work in a European M&A process today, and where does it not help?

Warranty & indemnity insurance transfers warranty breach risk from seller to an insurer: the buyer claims against the policy instead of the seller, enabling clean exits (sellers cap liability at or near €1) — standard in PE-driven auctions where sellers won't stand behind warranties. Process reality: the insurer underwrites off the buyer's DD, so coverage is only as good as diligence — un-diligenced areas get excluded; premiums in Europe run roughly 1-2% of policy limit with competition having pushed pricing down; buy-side policies dominate. Where it does not help: known risks (identified in DD or disclosed) are excluded — those need specific indemnities, price adjustments or, increasingly, contingent-risk policies (e.g. tax liability insurance) underwritten separately; classic exclusions include transfer pricing, underfunded pensions, environmental contamination, bribery, and often cyber; fraud by the insured buyer is never covered, though seller fraud typically is. Practical failure modes: assuming 'W&I covers it' instead of reading the exclusions, nil-recourse structures where warranties were never really negotiated ('synthetic' warranties need careful scoping), and claims friction — quantifying loss under the policy is its own fight.