Mergers and acquisitions may be a boon for investment banks and lawyers, but the risk that something will go wrong is rising and insurance payouts are getting bigger.

That’s one conclusion to be gleaned from a study by insurance giant American International Group Inc. AIG, +1.17% of M&A claims filed between 2011 and 2015, covering about 1,600 deals and more than $400 billion in deal value.

The study found that the number and size of insurance claims against M&A deals is rising and the sums being paid out are getting bigger. One in four policies written on deals with a value of more than $1 billion ended in a claim. And 18% of all global representation and warranty (R&W) policies written by AIG resulted in a claim.

“The bigger and more complicated a deal is, the more likely there is an unknown liability lingering,” said Mary Duffy, global head of M&A insurance at AIG. “We are paying sizable claims, sometimes writing eight-figure

AT&T CEO Randall Stephenson said he doesn't believe the company's merger with Time Warner would be anticompetitive. WSJ Deputy Editor in Chief Matt Murray spoke to Mr. Stephenson at Davos about the merger, and what a lower tax rate would mean for AT&T.

The study found that half of all material claims, defined as more than $100,000, were above $1 million. A full 47% were between $1 million and $10 million with an average payout of $3.5 million. Meanwhile, fewer than 7% exceeded $10 million, with an average payout of $22 million.

“A maturing market mixed with pressure to execute transactions quickly could be a leading factor behind the increase in frequency,” said Michael Turnbull, Americas M&A Manager, AIG. “At the same time, we’re seeing claims across the board in terms of severity, which means that the product is responding to a host of different situations.”

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R&W insurance is used by both buyers and sellers in a transaction. The buyer is seeking protection against any financial loss arising from breaches of representations made by the seller. Sellers, meanwhile, buy policies to protect themselves against financial loss arising from buyers who claim those breaches. AIG is one of the biggest underwriters of R&W insurance in the world.

AIG found that most claims were triggered by problems with financial statements, followed by compliance with laws, discrepancies in a company’s contracts, tax issues and intellectual property.

Most claims in the financial statements category, or 26% of total claims, involved companies breaking accounting rules, followed by misstatement of accounts receivable/payable. That was followed by undisclosed liabilities, inventory misstatement and overstatement of cash holdings or profits.

“You can pick up all sorts of complex issues that are not flagged during the diligence process,” Duffy said. “We help cover these unknowns.”

Mergers can be a boon for investors if they come with a hefty premium, but not all deals are successful. The poster child for a failed merger is that of AOL and Time Warner TWX, +0.00% back in 2000 that was valued at a whopping $164 billion. The deal was launched with a great deal of ballyhoo and hype in the midst of a dot.com boom that quickly turned to bust as the economy went into recession.

Add to that dynamic a massive culture clash between the aggressive Young Turks at AOL and the more staid culture at Time Warner and the deal quickly collapsed. In 2002, AOL was forced to take a nearly $99 billion writedown.

While few M&A deals are at risk of destroying that much value, not all investors are convinced by their merit. Richard Miller, managing partner at Memphis-based hedge fund Gullane Capital LLC, said he doesn’t buy into merger stories, noting how many of them fail to generate the promised synergies and cost savings.

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“About 70% of mergers don’t work out they way they are supposed to,” he told MarketWatch.

Miller’s hedge fund has a long position in Apple Inc. AAPL, +1.25% which he cited as a good example of a company that has grown from scratch without making big deals. In fact, before Apple acquired Beats from its co-founders for $3 billion in 2014, the company had not made any acquisitions bigger than about $500 million, he said.