Claim Frequency and Breach
Trends
Multiplied Damages
Despite significant M&A market volatility since 2019, claim frequency has remained relatively steady, with only a modest increase since the low point in 2020. (See Figure 7.) While Aon’s 2023 and 2024 policy years are trending toward an annual claim rate above 20% for the first time since 2017, when viewed alongside the Insurer Survey data, it appears that overall R&W claim frequency will remain within the historic 16-20% range. Figure 8 illustrates how Aon’s notification rates have developed as individual policy years have matured. 2023 and 2024 remained about 3-5% higher than the prior four years, while 2025 started slightly below the typical rate after 6 months of data.
Insight
Claim frequency grows fastest in the first year; overall levels in 2023 and 2024 are above recent norms.
Claim Trends by Client Type
When we look at the difference in claim frequency between non-corporate clients and corporate clients, non-corporates have a slightly lower claim frequency year-over-year, but that gap has not resulted in a significant difference in losses paid. (See Figures 9 and 11.) 49% of claims have come from corporate clients since 2019, while they only represent 36% of total deal volume in that same period. (See Figure 10.) However, paid losses continue to remain in line with the percentage of deals between each buyer type. Non-corporates represent 64% of total deal volume and have recovered 63% of losses paid since 2019. The frequency gap continues to be balanced by a larger median and average payment amount on non-corporate claims.
Buyer Type Trends (2019–2025)
Breach Types and Drivers of Loss
Frequency and Severity by Breach Type
The breach trends seen in the last few years have persisted into 2025. Compliance with laws remains the most frequent breach type and accounts for over 20% of notifications. Material contracts, financial statements, and tax breaches all remain above 10%. Compliance with laws breaches are frequent due to the catch all nature of the typical representation, which can cover issues like antitrust violations or public and consumer protection violations, and often can overlap with other breaches pertaining to litigation, employee matters, environmental matters, etc.
Shifting the focus to severity, the key outlier is still financial statements breaches, which have resulted in 38% of paid losses on policies placed after 2019. While material contracts remain the second most frequent breach type, the gap between financial statements and material contracts payments has grown. That said, insurers continue to consistently validate greater than dollar-for-dollar losses on both breach types. The other notable difference in the data is the increased severity of intellectual property breaches, which, last year, accounted for 5% of overall losses since 2019, but is now over 10%.
A Deeper Dive on Claims by Breach Type
To better understand what is driving the increased severity of intellectual property claims, as well as provide insight into the key issues driving other severe loss, we have broken out the most common fact patterns that have resulted in significant claims under four breach types: financial statements, material contracts, compliance with laws, and intellectual property.
Financial Statements
The leading driver of loss for financial statements breaches has been improper revenue recognition. (See Figure 13.) One key issue tends to be the timing for recognizing revenue, where a seller accrued unearned revenue or failed to properly accrue for changes in project milestones or contract performance obligations when using work in progress/percentage of completion accounting. In other cases, the company simply booked certain expenses as revenue by mistake. Another consistent revenue recognition issue is channel stuffing, which results in overstated revenue from customers within the trailing twelve-month (or deal specific timeline) period. For certain industries such as software and technology, misstatements about churn/renewal rates and pricing have impacted revenues as well.
The second leading loss driver for financial statements breaches stems from improper accounting controls. These claims include the improper accrual of operating expenses, commission fees or revenue share amounts owed to vendors, improper reserves for liabilities or indebtedness, misstatements of asset retirement obligations, or general misclassification of certain liabilities as assets. General accounts receivable issues also remain common, usually due to billing and/or management deficiencies related to purchase orders.
Financial statements breaches remain common across all industry sectors, but we have seen a greater frequency of improper revenue recognition and accounts receivable issues in retail, technology, and among service providers. Improper accounting controls have not been unique to a particular industry sector, while inventory and cost of goods sold misrepresentations (unsurprisingly) are most prevalent in the manufacturing sector.
Material Contracts
As Figure 14 shows, material contracts payments predominantly result from the loss of a material customer or a material reduction in business with a material customer that was indicated prior to closing, but not disclosed. While insurers and other stakeholders within the M&A ecosystem may be surprised by this, given the level of diligence that goes into customer relationships, customer breaches continue to result in significant losses. While fraud allegations remain rare, a breach of the material customer representation is the most common situation where indications of fraud arise.
Material contracts breaches often arise out of a seller’s failure to comply with contractual obligations prior to closing. Breaches of supplier agreements by manufacturers, inability to meet production quality or timelines (resulting in penalties or termination of contracts), or other failures to obtain the required approvals or consents under existing contracts are commonly seen. Contracts where the seller fails to disclose that the costs to perform the contractual obligations are greater than the revenue generated and customer billing issues are the other key categories of loss within this breach type. Customer billing issues usually arise due to billing for services that were not provided, improperly tracked, or mispriced.
Compliance with Laws
The distribution of compliance with laws claims and associated loss has continued to evolve. Historically, we have seen wage and hour claims account for almost 10% of compliance with laws breaches, however it accounts for only 1% of compliance with laws losses paid on policies placed since 2019. There is still a considerable volume of wage and hour claims, but losses have mostly remained within the retention, with a number of claims still active. On the other hand, Department of Justice antitrust investigations are less frequent but have a high severity, representing over half of recent compliance with laws payments. Losses from public and consumer protection violations have resulted from disabilities act violations, biometric information privacy act (BIPA) violations, telephone consumer protection act (TCPA) violations, building and product safety violations, as well as other penalties arising from other niche, industry specific government audits. Unsurprisingly, healthcare billing and coding violations continue to be a significant driver of loss for claims alleging a compliance with laws breach. These breaches often fall within the compliance with laws and financial statements representations and our categorization typically depends on whether the discovery of the breach arises from a third-party claim or is a self-discovered issue within the company’s financials. While compliance with laws breaches typically involve third-party claims resulting in dollar-for-dollar losses, it is always important to assess whether the misrepresentation has an impact on the profitability of the business moving forward.
Intellectual Property
The increase in intellectual property losses has been driven by a wide variety of underlying scenarios, as seen in Figure 16. 32% of losses relate to third party disputes regarding license and/or royalty fees, driven by usage disputes for standard commercial software licenses, as well as underpayments of fees related to more bespoke license / royalty agreements. Patent infringement litigation has resulted in significant losses as well, especially given the material defense costs that are incurred even in a successful defense. Cyber and privacy issues are the third most severe, but actual cyber security incidents are not the typical cause of loss. The underlying fact scenarios typically involve payment card industry data security standard (PCI) compliance violations, general information technology (IT)/cyber security asset deficiencies, or violations of data privacy laws. We have also seen disputes with sellers or third parties regarding trade secret misappropriation as well as general trademark and copyright infringement allegations in sectors such as pharma, retail, and manufacturing. Intellectual property representations may include limitations that impact coverage. These include knowledge qualifications, timing limitations, carve-outs, and other deal specific issues and disclosures. Given these factors, the negotiated language of the purchase agreement is key in determining the claim outcome.
Industry-Specific Breach Trends
While there are breach types that impact all industries, there are major differences in the risk-profiles of industries overall. Aon’s data on the frequency of breach types by industry provides a roadmap to understand how the representations in an acquisition agreement which have the greatest potential to lead to claims can vary by industry. Further information regarding the complex industry risk profiles developing on R&W claims is available in our 2025 claim study which provides in depth analysis within healthcare & life sciences, technology, energy, oil & gas, retail & consumer, construction & infrastructure, manufacturing, and transportation & logistics. We expect to provide an updated analysis on industry data in our 2027 claims study.
Frequency of breach type by industry
| Industry | Product Liability | Financial Statements | Compliance with Laws | Tax Matters | Undisclosed Liabilities | Employee Matters | Material Contracts | Condition of Assets | Intellectual Property | Fundamentals | Litigation | Real Property | Environmental Matters |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Industrials & Manufacturing | 6.2% | 13.1% | 11.9% | 16.4% | 4.1% | 5.3% | 14.8% | 7.8% | 8.6% | 1.6% | 2.5% | 1.2% | 6.6% |
| Natural Resources / Energy, Oil & Gas | 3.6% | 17.9% | 10.7% | 19.6% | 5.4% | 1.8% | 14.3% | 10.7% | 1.8% | 3.6% | 0% | 3.6% | 7.1% |
| Technology, Media & Communications | 1.1% | 11.7% | 12.8% | 18.3% | 5% | 6.1% | 20% | 1.1% | 15% | 6.1% | 2.2% | 0% | 0.6% |
| Transportation & Logistics | 1.3% | 21.3% | 24% | 10.7% | 5.3% | 8% | 10.7% | 4% | 4% | 0% | 5.3% | 2.7% | 2.7% |
| Food, Agribusiness & Beverage | 7.8% | 8.9% | 22.2% | 11.1% | 3.3% | 12.2% | 13.3% | 6.7% | 3.3% | 3.3% | 2.2% | 2.2% | 3.3% |
| Professional Services | 0.4% | 16.3% | 17.6% | 22.2% | 4.6% | 9.6% | 12.6% | 2.1% | 7.5% | 1.3% | 1.7% | 0% | 4.2% |
| Healthcare Providers & Services | 0% | 13.7% | 43.8% | 11% | 5.5% | 9.6% | 9.6% | 1.4% | 1.4% | 2.7% | 1.4% | 0% | 0% |
| Financial Institutions | 0% | 14.7% | 26.5% | 14.7% | 5.9% | 11.8% | 17.6% | 0% | 5.9% | 0% | 0% | 0% | 2.9% |
| Retail & Consumer Goods | 6.8% | 17.1% | 30.7% | 14.8% | 1.1% | 5.7% | 5.7% | 3.4% | 6.8% | 2.3% | 3.4% | 2.3% | 0% |
| Real Estate | 0% | 7.7% | 23.1% | 15.4% | 0% | 7.7% | 15.4% | 7.7% | 0% | 0% | 23.1% | 0% | 0% |
| Sports & Entertainment | 0% | 6.1% | 21.2% | 9.1% | 3% | 6.1% | 24.2% | 6.1% | 18.2% | 0% | 0% | 0% | 6.1% |
| Life Sciences | 11.9% | 11.9% | 16.7% | 14.3% | 4.8% | 4.8% | 11.9% | 4.8% | 9.5% | 4.8% | 4.8% | 0% | 0% |
| Renewables | 0% | 33.3% | 16.7% | 5.6% | 0% | 5.6% | 0% | 22.2% | 0% | 5.6% | 0% | 11.1% | 0% |
| Construction | 4.8% | 14.3% | 19.1% | 9.5% | 4.8% | 4.8% | 9.5% | 4.8% | 9.5% | 0% | 14.3% | 0% | 4.8% |
Key Statistics
Breach Trends 40%
Financial statements breaches have accounted for 40% of the loss paid on policies placed since 2019, led by claims arising out of improper revenue recognition.
Intellectual Property x2
As predicted in Aon’s 2025 claim study, intellectual property losses increased, doubling from 5% to over 10% of total loss as a result of a wide variety of underlying misrepresentations.
Compliance with Laws 1%
While wage and hour claims have historically accounted for a high percentage of claims alleging a breach of the compliance with laws representation, they only account for 1% of compliance with laws losses paid on policies placed since 2019.
