General insurers see huge demand for title insurance

Come April 2018, real estate developers will be able to buy title insurance cover — an indemnity policy which insures against financial loss from claims in title to land or property.

General insurance companies including state-owned National Insurance Company (NIC), SBI General and HDFC Ergo are eyeing products in this segment.

Typically, title insurance would be through long-term policies ranging between 5 and 12 years. The promoter will pay premium and charges for such a cover taken, before transferring it to an association of allottees, on completion of the project.

The level of coverage of such products will be determined based on the gross developed value (which includes value of land, cost of construction and profit margin of developer).

“The demand is huge. Initially, such products will be bought by developers, but moving forward we expect demand to come in from retail (individuals buying land to develop homes) segment as well,” Mukesh Kumar, Executive Director, HDFC Ergo, told BusinessLine .

“Nearly 1 per cent of the gross developed value of the project would have to be borne by the developer; the rest can be up for insurance,” he added.

According to industry experts, globally, title insurance is a multi-billion dollar business. But these products are not available here due to lack of transparency and uniformity in real estate, and an absence of centralised repository of land records. Issues relating to land title end up in disputes and litigation causing delays or even cancellation of projects.

The Real Estate (Regulation and Development) Act, 2016 (RERA) mandates promoter to obtain requisite insurance policies so as to secure development of a project. This include insurance against title of land, building and construction.

Industry sources say as many as 23 States and Union Territories have notified RERA rules under the RERA Act. The contour of the product will vary depending on rules notified by individual States.

Any project which is developed on an area exceeding 500 sq meters or has more than eight apartments are mandatorily required to take title insurance cover, Kumar said.

Currently meant for residential projects, title insurance would also find takers in the commercial segment in the days to come.

According to Puneet Sahni, Head- Product Development, SBI General, since title insurance is a specialised risk and a new vertical, the market will take some time to come out with comprehensive offerings.

“Coupled with unstructured title documents and lack of digital registers, the insurers have to take a conscious step towards this vertical,” he pointed out.

While there is a huge potential for the product, it calls for lot of due diligence on the part of insurers, K Sanath Kumar, Chairman-cum-Managing Director, NIC, said.

“It has a lot to do with digitisation of land records, there has to be an ecosystem of legal advisors around the product to carry out due diligence,” he said.

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