INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA

Ref. No: IRDAI/NL/WG/Title Ins/67/05/2021-22

Date:10-05-2021

Exposure Draft

Report of the Working Group (WG) to revisit the product structure of Title Insurance

Title Insurance products are currently offered by only a few General Insurers in the Indian market. The features of these products, namely the terms and conditions, scope of coverage etc vary from insurer to insurer. In order to examine the needs of the market and make recommendations with regard to the structure of title insurance products, the Authority set up a Working Group vide order Ref:IRDAI/NL/ORD/PRO/180/10/2019 dated 1th October 2019.

The Working Group has submitted its report in which it has made various recommendations, including two new product structures for Title Insurance.

The report of the working group is now placed on the website to seek valuable inputs of all the stakeholders. Please give your feedback in the format given below on or before 31st May, 2021 to [email protected] a copy marked to [email protected]

(Yegnapriya Bharath)

Chief General Manager (Non-life)

Format

Name/Organization: Address & contact no: Date:
Page no Para No./ Point No. Suggestions/Comments Reasons

Executive Summary

1. Title Insurance is a form of indemnity insurance that insures against financial loss from defects in Title to real property. In certain jurisdictions, institutional lenders require Title Insurance to protect their interest in the collateral of loans secured by real estate. In India, the Real Estate (Regulation and Development) Act, 2016, for the first time, gave statutory recognition to the concept of ‘Title Insurance’. It provides that a promoter shall obtain all such insurances as may be notified by the appropriate Government including but not limited to Title of the land and building as part of the real estate project and construction of the real estate

2. Chapter I of this report sets the context to the need for Title Insurance products in India and the setting up of the Working Group on Revisiting the Product Structure of Title Insurance

3. Chapter II deals with the current legal and regulatory framework for real estate The Real Estate (Regulation and Development) Act, 2016 has brought in certain insurance related provisions wherein insurance in respect of Title of the land finds a place. This chapter analyses the various relevant provisions.

4. Chapter III deals with the structure of current products and examines the various

5. Chapter IV deals with the specific recommendations of the Working Group with regard to the products being recommended. The detailed recommendations have been tabulated and attached to this Summary as an

6. Needless to add reinsurance plays an important role, especially when new products are introduced in the market, both from the point of view of augmenting capacity and transfer of required expertise from other domains. The Working Group recognised the fact that increased reinsurance capacity within the country through GIC Re, FRBs and Lloyd’s will help improve the underwriting capacity of the insurers and increase retention in this area within the

Executive Summary of revised Product structure (A brief Comparison)

(a) (b) Current structure (c) Recommended structure
Nature of policy Comprehensive cover for all Promoter and allottees and successors Comprehensive cover Promoter and allottees and successors ( Same as currently available) Promoter Legal Expenses Policy

(Additional option at the time of start of fin appraisal of the project)

Allottee Retail Policy

(Additional option for end user individual buyer of the property unit)

 –

COVERAGE highlights

 

Insured

 

Promoter/Developer and all successors in Title of the foregoing including any appointed society/association/ condominium/ federation relating to the development, including but not limited to any purchaser, mortgagee, transferee, chargee, tenant, assignee, trustee, beneficial owner or successor for the time being of the Property or any part of the Property and/or the rights therein or associated therewith

Promoter and Allottees only; subsequent purchasers from original allottees can only benefit from cover if they pay an additional premium

The Definition of Insured may include or exclude specifically purchasers who are successors in Title

 

As per existing products (mentioned in column b)

 

Promoter/ Dev eloper

 

Retail individual buyer

Time of purchase of the policy  

At the beginning of the financial appraisal and due diligence of the project/application to RERA for approval till the handing over to individual buyer.

 

Ideally at the beginning of financial appraisal and due diligence of the project/ application for RERA approval till the handing over to individual buyer.

The policy can also be purchased at any point of time.

 

At the beginning of the financial appraisal and due diligence of the project/ application for RERA approval. As regards minimum mandatory cover the State/UT Governments may decide as per their local situations.

However, in order to ensure uniformity, Ministry of Housing and Urban Development (MoHUA) in consultation may wish to examine the matter in consultation with the Ministry of Law & Justice, the States and the Union Territories.

 

At the time of the possession /handing over to the individual buyer

Sum Insured Full development value of the project Full development value of the project (As per RERA act).

Insurer may look to provide for loss limit policies subject to available reinsurance capacities.

Certain % of the project values

(This aspect may also be examined by MoHUA in consultation with the Ministry of Law & Justice and the States and the Union Territories.

Purchased value of the unit by the end individual buyer
 

Term

 

7 to 12 years

 

As per existing products for full length of the project and even after the project has been handed over till the expiry of coverage period 7 years or 12 years.

 

Initial years or until handing over to the end individual buyer subject to maximum period of 7 years

 

As per his/her own choice deemed fit to his requirements annually/ long term 3 years’ options

Coverage Focus Comprehensive cover for all legal defence cost and compensation liability as prescribed under RERA Act Comprehe-nsive cover for all legal defence cost and compensation liability prescribed under RERA Act Purely for legal defence  cost only against suits challenging the Title of the project End individual buyer protection for the purchased Title for any future legal suits
 

Premium/ deductible /Co- payment etc

More favourable on price less favourable on payment terms Rates are lower and no upfront diligence costs

One-year instalment plan

Rates are higher Up to 2/3-year instalment plan

Excess of 1% of Limit of Indemnity or 5% of the claim amount or

Deductible of 10% of Loss (Co-pay)

As per existing products premium payment options available

Deductible may be as agreed between insurers and insured

Suitable single payment/ instalments as may be decided by the insurer Suitable full payment/instalments as may be decided by the insurer
 

Insured Risks

 

 

Lack of Title

Fraud, forgery, duress, undue influence etc Lack of access

Additional coverage

Known Defects (if agreed by the insurance company)

Lack of all other easements: drainage and services etc Historic transfers at undervalue to avoid creditors

Errors in searches Missing landlords, breach of historic lease terms , defective leases Historic breaches of planning permission and historic missing occupancy certificates Reserved rights and easements which prevent development and/ or use of the property

Challenges to the Title or use of common parts of the property

Breach of burdens and restrictive covenants which prevent development and use of the property

 

As per existing products (mentioned in the left column b)

 

As per recommended sample wordings.

 

As per recommended sample wordings.

 

Exclusions

 

Claims relating Tribal rights over Agricultural Land.

Changes in Insured’s use of property.

Claims relating to environmental issues & property damage.

Claims arising from exercise of statutory rights by Government and State Bodies.

Claims arising from future changes in planning or property laws by Government or State entities.

Claims arising from defects in the Title which are created after commencement of policy.

Claims arising from Insolvency of Insured.

Additional exclusions conditions like

  • Taxes (including value added taxes) or assessments which are not shown as existing liens in the Public Records at the Date of Cover.
  • Any persons or parties in possession not disclosed by the Public Records.
  • Discrepancies, conflicts in boundary lines, encroachments, or any other facts which a correct survey of the Land would disclose.
  • The dimensions or area of the Land

Subsurface or subsoil estate or rights in the Land, together with the oil, gas, stones, any fossil substances, minerals, deposits, products, petroleum, hydrocarbons and other substances, and related rights to use the surface, or subsidence caused by the exercise of such rights; natural servitudes, air rights or air space owned by the jurisdiction in which the Land is located, or those claiming under the jurisdiction in which the Land is located.

  • Water rights, claims, or Title to water, whether or not shown in the Public Records.
  • Riparian rights, any rights of ownership in submerged lands, filled-in-Iands, or the beds, coasts or banks of streams, rivers, tidelands, sea coasts, foreshore, beach, lakes, lagoons, estuaries, tributaries, ravines and springs
  • Any compulsory purchase or acquisition by a government authority, expropriation, nationalization, resumption or similar rights conferred by law unless notice of the exercise of the right is recorded, filed or registered in the Public Records at the Date of Cover
 

As per existing products (mentioned in the left column b)

 

As per recommended sample wordings

 

As per recommended sample wordings

 

Claims

 

45 days to notify claim

In some policies there are subjectivities like Insurer may decline a claim if Statement of Loss not submitted in 20 days

“The Statement of Loss shall describe the defect in, or lien or encumbrance on the Title, or other matter indemnified against under this Policy which constitutes the basis of Loss and shall state the basis of calculating the amount of the Loss. If the Insurer is prejudiced by the failure of the Insured to provide the required Statement of Loss, the Insurer’s obligations to the Insured under the policy may terminate, including any liability or obligation to defend, prosecute, or continue any litigation, with regard to the matter or matters requiring such Statement of Loss.”

 

As per existing products (mentioned in the left column b)

 

As per recommended sample wordings

 

As per recommended sample wordings

 

Special costs regarding placement of coverage

 

No independent due diligence

Upfront costs for third party due diligence generally borne by the insured

 

Triparty mechanism for due diligence may be developed among financial institutions, developers and insurers.

 

Triparty mechanism for due diligence shall be developed among financial institutions, developers and insurers.

 

Not required.

Available to all customers on the basis of due diligence already taken place.

Download Report of the Working Group on Revisiting Product Structure of Title Insurance Products

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