Introduction: The Myth of High-Risk Industries

When it comes to representations and warranties (R&W) insurance in M&A, conventional wisdom often brands certain sectors — particularly healthcare and technology — as inherently riskier. But Aon's comprehensive claims data, covering more than 1,100 North American R&W claims and 200+ payments through Q4 2024, tells a different story. No single sector dominates either breach frequency or loss severity. Instead, the real insight lies in which types of representations consistently fail, and why those failures vary dramatically across industries.

Healthcare and technology serve as powerful case studies because they represent the largest claim volumes and recoveries for Aon clients. By examining the specific breach patterns in these two sectors, buyers can identify the diligence gaps that truly matter — and avoid the trap of treating all “high-risk” industries the same.

[IMAGE: Bar chart comparing claim frequency by sector (healthcare, tech, others) with no significant outliers.]

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Healthcare: Compliance First, Financial Statements Second

In healthcare M&A, the dominant source of R&W claims is compliance with laws. According to Aon's dataset, compliance breaches account for 32% of healthcare claims, compared to just 19% across all industries. Within that category, billing and coding errors make up 26% of all healthcare claims — a reflection of the complex regulatory landscape governing Medicare, Medicaid, and private payer reimbursements.

Interestingly, the intense focus on compliance may be having a secondary effect: it appears to be reducing the frequency of financial statements breaches. Healthcare financial statements claims occur at only 10% frequency, below the all-industry average of 13%. However, when financial statements breaches do occur in healthcare, they drive the highest loss severity — a pattern that holds across sectors.

Deal size also matters. Smaller transactions (enterprise value ≤$500M) represent over 65% of healthcare claims. Yet mega-deals (>$1B EV) are disproportionately represented: 21% of healthcare claims came from these large transactions, even though they account for only about 10% of insured deals. This suggests that the complexity of large healthcare systems, with multi-entity structures and diverse revenue streams, creates hidden liabilities that standard diligence may miss.

Aon clients have recovered $122.6 million from healthcare R&W claims, with total recognized losses of $185.8 million across 35 active claims. The lesson for buyers: prioritize billing compliance audits and revenue cycle integrity, but never underestimate the outsized impact of a financial statements breach.

[IMAGE: Pie chart of healthcare claim types: compliance 32%, financial statements 10%, others split.]

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Technology: Tax, Contracts, and IP — The Unseen Traps

Technology M&A presents a different risk profile. Here, the most frequent breach category is tax matters, at 21.7% of all tech claims. These are typically low-severity issues — often sales/use tax audits uncovering minor adjustments related to software licensing or digital services. But their prevalence signals a systemic weakness in how tech sellers manage multi-jurisdictional tax obligations.

Close behind are material contracts (18.4%) and intellectual property (15.8%). The emphasis on contracts reflects the complexity of tech revenue recognition — recurring subscription revenue, milestone payments, and complex licensing terms often create ambiguity about what exactly is being sold and when. IP breaches, meanwhile, frequently involve open-source software compliance, patent ownership disputes, or insufficient trade secret protections.

Again, financial statements breaches are less frequent but carry the heaviest financial punch. In tech, these claims often stem from errors in accounts receivable valuation, improper billing tracking, or EBITDA miscalculations — issues that directly impact purchase price adjustments.

The numbers are striking: Aon clients recovered $183.3 million from technology R&W claims, with total recognized losses of $265.6 million across 27 active claims. For buyers, this data underscores the need to dig deep into tax structuring, contract authenticity, and IP chain-of-title during due diligence — areas where tech sellers frequently fall short.

[IMAGE: Horizontal stacked bar chart showing tech breach categories: tax (21.7%), material contracts (18.4%), IP (15.8%), financial statements (X%), others.]

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Cross-Sector Patterns: The Financial Statements Paradox

When you step back and compare healthcare and technology, a clear cross-sector pattern emerges: financial statements breaches are the silent severity drivers. In both industries, these claims occur less frequently than compliance or tax issues, but they account for the highest percentage of loss recovered. This paradox — low frequency, high severity — sends a critical signal to buyers.

The data suggests that sellers' disclosure is weakest where revenue recognition, billing, and contractual obligations intersect with complex accounting rules. In healthcare, that intersection involves coding and reimbursement timing. In technology, it involves subscription revenue deferrals and contract modifications. In both cases, standard financial statement audits may not catch the nuances that trigger a post-close claim.

As Aon's transaction solutions team puts it: “The creation, implementation, and documentation of internal controls over financial reporting remain the most overlooked diligence area in mid-market M&A — regardless of sector.” This observation is especially relevant for buyers targeting companies with rapid growth, decentralized accounting functions, or recent changes in accounting standards.

[IMAGE: Scatter plot showing claim frequency (x-axis) vs. average loss severity (y-axis) for different breach categories, with financial statements positioned in the low-frequency, high-severity quadrant for both healthcare and tech.]

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Conclusion: Rethinking Due Diligence for Sector-Specific Risks

The claim data from Aon offers a clear roadmap for buyers navigating healthcare M&A due diligence and technology M&A risks. Rather than treating entire sectors as uniformly dangerous, sophisticated acquirers should focus on the specific representation categories that historically fail — and align their diligence accordingly.

• In healthcare, compliance with laws (especially billing and coding) demands the most attention, but don't neglect financial statement quality in larger deals.
• In technology, tax structuring, material contracts, and IP ownership are the primary traps, yet financial statement accuracy remains the biggest swing factor for loss recovery.

By integrating these industry breach trends into their due diligence playbooks, buyers can reduce claim frequency, minimize severity when claims do arise, and ultimately achieve more predictable outcomes in M&A. The data doesn't point to any industry being “riskier” — it points to the need for smarter, more targeted diligence rooted in real-world claims experience.