Title insurance is a form of an indemnity insurance which insures against financial loss from defects in title of real estate property. While other forms of insurance provide protection against future loss, title insurance provides cover for an event in the past which has resulted in unclear title or led to a dispute.
Hence, the coverage of the policy is a retrospective one, where the insured is protected against losses arising from the events that occurred prior to the date of issuing the policy. The policy will be of long-term.
India’s insurance regulator, the Insurance Regulatory and Development Authority of India (IRDAI) had set up a working group in June 2016 consisting of IRDAI officials as well as key industry players in order to establish a policy for and to promote the implementation of title insurance in India.
In India, title insurance is designed as a safeguard tool towards the financial interest of real estate owners, investors, lenders against property issues etc. Individuals can also buy title insurance at the time of buying the property from builder/property owner in order to safeguard his property from any future dispute. The purchase can be made from any preferred insurance company in India who have an IRDAI-approved product.
The implemented law RERA (Real Estate Regulation and Development Act, 2016) emphasized on taking insurance to improve upon the transparency and answerability in this segment. Title insurance at present is in its developmental phase and is likely to be backed by reinsurance support.
An obligation has been imposed under RERA on promoters to obtain the requisite insurance policies to secure the development of a real estate project and all such insurances as may be notified by the government, including but not limited to insurance in respect of the title of the land, building and construction of the real estate project. The promoter is also liable to pay the premium and charges in respect of these insurances and shall pay the same before transferring the insurance to the association of the allottees once the project has been completed.
Any projects which are developed on an area exceeding 500 sq meters or have more than eight apartments are mandatorily required to take title insurance cover.
Hence under RERA, obligation to take title insurance will solely depend with the respective builder/promoter.
The level of coverage will be determined based on the gross developed value (which includes value of land, cost of construction and profit margin of developer).
Required Due Diligence
There is a huge potential for the product but it calls for a lot of due diligence on the part of insurers. The insurer will have to check the following (but not limited to) before issuing a title insurance Policy:
- Verification of title in multiple registries.
- Identifying missing or illegible documents.
- Identifying and correcting erroneous entries.
- Tracking missing heirs and publishing announcements.
- Litigation searches.
- Determine tenancy rights.
- Encroachments, overlaps, agricultural land use.
- Zoning and other types of permitted use issues.
- Enforceability and priority of mortgage
Benefits under title insurance
Title insurance gives the consumer legal protection to ensure that the developer honours his commitments. The rising confidence in the market will also improve home financing options, thereby ensuring timely delivery of projects. Title insurance provides coverage against the following:
- Defect in, or lien on the title at the date of cover including but not limited to, indemnification of loss from a defect in the title caused by-
- Forgery, fraud, undue influence, duress, incompetency, incapacity or impersonation
- Failure of any person or entity to have authorized a transfer of conveyance
-A lien or charge for real estate taxes or assessments imposed on the Title by a governmental authority due or payable, but unpaid at the Date of Cover
- Document affecting title, not property created, executed, witnessed, sealed, stamped, acknowledged, notarized or delivered
- Documents affecting title executed under a falsified, expired or otherwise invalid power of attorney.
- Defense costs: If the property title is challenged in court through litigation, the entire proceedings will be covered by the insurance policy.
- Out-of-court settlement: Expenses incurred during out of court settlements with other party is also covered under insurance. This also includes compensation to be made to the parties involved. However, the petitioners should not be the co-owner, co-borrower for the property.
- Court verdicts including AO/ Tribunal under RERA
Title insurance will prove to be a mutually beneficial for developers, promoters, financers and buyers in a real estate project. Title insurance is comparably new in India and belongs to European and American markets where the land records are already systematically fed whereas Indian service providers will be facing a daunting task in India, as the land details are either completely manual or are partially digital in select states. Therefore the cost and time involvement will be more, which will be borne by the insurer.
Also level of coverage will be variable to the value of the property but with improving dynamics and improving transparency, there exists a huge potential which can be tapped by Indian Insurers in future years.(The writer is MD & CEO, Universal Sompo General Insurance)