Insurance cover for real estate deals soon

Risks associated with property transactions in India could reduce with at least three insurers submitting details of the property title insurance products they wish to launch to insurance regulator Insurance Regulatory Development Authority, or Irda.

People familiar with the submissions said ICICI Lombard General Insurance Co. Ltd, National Insurance Co. Ltd, or NIC, and HDFC Standard Life Insurance Co. had filed details of their products with Irda as any company wishing to launch an insurance product here is required to. Executives at ICICI Lombard and NIC confirmed the submissions. Executives at HDFC Standard Life Insurance could not be reached for comment.

The spokespersons for two other insurers, Iffco Tokio Ge-neral Insurance and Oriental Insurance Co. Ltd, said these two firms are also working on title insurance products.

The new products are a sign of the growing maturity of the insurance and real estate businesses in the country. Several real estate firms have sold shares to the public in the past two years, becoming accountable to a larger group of shareholders for their dealings. For insurance firms, the products are a way to increase their por-tfolio of offerings and start tapping an area where there is lik-ely to be no dearth of business.

Property transactions in India are inherently risky because the government doesn’t guarantee ownership of land. It merely endorses property transactions and earns revenue from them. Experts say six out of every 10 court cases filed or waiting to be resolved in India relate to property. Not all buyers, however, will be able to benefit from the new products being launched.

“Title insurance is very common in the US and Europe. In India, in the current context, this will be primarily offered in transactions where the title is clear and the valuations are large. It will be primarily used on the commercial side, not at all on the retail side. Companies will have to do some amount of due diligence,” said Ravi Trivedy, executive director with consulting firm KPMG.

“They (buyers) will have to prove that they have done their due diligence before we offer the product,” said an executive at NIC who did not wish to be identified.

Title insurance is basically protection against financial loss from real estate transactions arising from defects in the “title” or “ownership” of the property.

NIC was among the first Indian companies to consider a title insurance product last year, after the Karnataka government decided to give a half percentage point (or 50 basis points) discount in stamp duty to property buyers who opt for title insurance.

In response to its submission, Irda has asked the firm to resolve issues pertaining to pricing. The company will resolve these issues and file the product in two months, added the NIC executive.

“There are some issues regarding the pricing of title insurance products,” said R. Kannan, member, actuary, of Irda. “Being long-term products of around 10-15 years, companies need to have proper risk mitigation tools in place before launching such products,” he said.

Irda and the firms would not speak on when these products would be available.

Pricing and risk management are key issues for companies launching title insurance products because of paucity of data on the likelihood of somebody contesting a claim to property. The companies will likely test their products in states where not too many title claims are contested before launching them nationally.

“Unlike vehicle insurance, where we know the ratio of accidents in different cities and price the products accordingly, in property there is absolutely no reliable data to go by,” the NIC executive said.

“You have to see how it goes and then tweak the premium accordingly. For example, if there have been no claims for five years, then the premium would be reduced,” the executive added.

“The Indian market does not have any similar product to compare with. However, the premium is likely to be in the range of 0.5-2% of the total sum assured,” said Anuj Gulati, director, ICICI Lombard.

(via Livemint.com)