Contingent Risk Insurance: Narratives, Taxonomy and Replicating the Growth in Tax Liability Insurance
Summary
Contingent risk insurance, which covers an insured for an identified legal issue, is increasingly vital to complex transactions, yet it currently represents only a fraction of its potential. The breakthrough needed for the next phase of growth is the creation of a clear taxonomy: a narrowly defined subset of products that convey easy narratives that mirror how advisors identify issues to which insurance can respond.
The contingent risk market must move to develop a set of simple, story‑led products. Minority shareholder risk stands out as the next breakout product—clear legal subject matter, commercially significant, prevalent in major jurisdictions, and repeatable.
With structured issue or subject based products, contingent risk insurance can replicate the same growth we have seen with tax liability insurance.
Achieving Scale
How can the market best achieve scale? The starting point is two related ideas:
1. Narrative simplicity; and
2. A clear taxonomy of products defined by the underlying legal issue or subject matter.
People don’t buy vague, nebulous categories, or conceptualized ideas. They buy stories; narratives that simplify and resonate. This is why the most successful modern products have scaled with a single, cognitively fluent tag line:
- Red Bull: “Red Bull Gives You Wings”.
- L'Oréal – “Because You’re Worth it”.
- BMW – “The Ultimate Driving Machine”.
- De Beers – “A Diamond is Forever”.
- MasterCard: "There are some things money can't buy. For everything else, there's MasterCard”.
- Bitcoin – “Digital Gold”.
These are broad based narratives that convey a simple idea and make a product easy to grasp and relate to.
This is why branding is critical to any business: it reduces an entire, highly complex organization to a simple message – this is what we stand for, this is what we are selling, this is why you should buy.
Tax insurance scaled for this exact reason. Once the market embraced the narrative “insurance for a specific tax position”, and coverage and pricing became more standardised, adoption accelerated dramatically. Accountancy and law firms could spot insurable issues in their everyday workflows, immediately becoming powerful origination engines. Brokers, in turn, could pair those identified risks with a clearly defined insurance solution, creating a repeatable product and scalable distribution.
What had previously been a niche product occasionally complementing warranty and indemnity insurance suddenly became mainstream because every market participant in the distribution chain—accountants, lawyers, brokers, underwriters, capacity providers—had a shared narrative. They were talking about the same thing.
Tax insurance grew because the story became clear enough for the whole market to act on it. The challenge for contingent risk insurance now is to do the same, and bridge the narrative gap.
How to Accelerate Growth of Contingent Risk Insurance?
Contingent risk is typically defined as a broad umbrella concept: “an identified legal risk”. But this may be too broad to create a fully scalable story. It begs the question “what do you mean?”, and “what type of risk or issue are you talking about?”. “Can you give me an example?”.
Advisors don’t generally think in broad, undefined, categories—they tend to think in terms of specific legal issues: a minority shareholder blocking a deal, a contested valuation, a contract termination risk, insolvency practitioners facing off against competing creditor claims, planning permission that may be overturned, a regulator who may rule either way. They think this way because these are the problems their clients face; the problems they want solving.
These are narratives. They have timelines, protagonists, legal problems and financial consequences. They have played out time and time again. They are flagged in DD reports over and over. These are the issues advised on day in day out. Truly scaling contingent risk insurance requires reflecting this reality through a carefully structured taxonomy.
To reach its potential, the contingent risk market needs to move away from vague concepts, such as “contingent risk”, into a structure of clearly defined, readily understood, legal issues or subjects.
We don’t need to identify all issues and subjects now; tax liability insurance itself is a subset of “contingent risk”, properly understood, focusing on an identified tax issue. We now need to identify the next handful, or even one or two products, that have similar characteristics to tax. If we focus on fewer products, with clear narratives, we will see more growth in the market.
Why Minority Shareholder Risk Could Be the Next Blockbuster Product
Among all potential products, minority shareholder risk may be the most promising candidate for the next breakthrough. It covers the insured for loss arising from an actual or potential claim from minority shareholders in the context of an M&A transaction. In other words, it covers you for minority shareholder risk. It is:
• legally recognised across major jurisdictions
• common in transactions worldwide
• often a recurring fact pattern
• a significant tail risk that can have major impacts on valuation and deal timing
• easily identified by advisors
• a product with a natural buyer group: private equity sponsors, founders, boards, lenders
It has all the characteristics of a flagship product—clear story, clear pain points, clear financial downside, clear value.
That is not to say that it is straightforward or can be fully commoditized; neither can that be said about tax insurance. The issues will remain complex and each risk will turn on its own facts and circumstances.
The risk may relate to the enforceability of drag or tag provisions, exercise of blocking rights, valuation or appraisal claims, or shareholder oppression claims, each requiring detailed analysis from underwriters with legal backgrounds that specialize in this area.
But the issues are familiar enough and relatable to provide the foundation on which to scale the product – the common theme being that a minority shareholder has or may bring an action causing loss to a party involved in an M&A transaction.
The Total Addressable Market: Much Larger Than May Appear Today
Contingent risk insurance today supports solutions across a variety of special situations. But its TAM is far larger—because in every transaction there is always some legal issue identified creating deal uncertainty.
To unlock widespread adoption, contingent risk insurance needs narrative simplicity based on common legal issues or subjects. Tax has shown what is possible in this endeavour. It is now time for contingent risk to follow suit. If the market can move to a clear taxonomy, we could see dramatic growth in years to come.
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Nathan Hull
Chief Executive Officer
Toremis Specialty