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IRDAI sets up panel to standardise title insurance for home buyers in India

Title insurance products are currently offered by only a few General Insurers in the Indian market.

, ET Online|
Oct 03, 2019, 04.51 PM IST
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Title insurance is an insurance of indemnity.
IRDAI is looking at developing a standard structure for title insurance which is mandatory for RERA registered projects. Title insurance provides indemnity to developers and subsequent home buyers of the property against losses due to defects in the title arising out of third-party challenges.

At present the issue of ownership or title is a large-scale problem in the real estate market. However, the insurance regulator's move will be helpful for home buyers in the long-run.

According to the The Insurance Regulatory and Development Authority of India's (IRDAI) order, as on October 1, 2019, "Title insurance products are currently offered by only a few General Insurers in the Indian market. However, each insurer's product features vary in policy terms and conditions, scope of coverage, etc., based on the support received from their reinsurers. It is noted that the number of title insurance policies sold are minimal despite the availability of product for the last one and half years and the obligation cast in terms of Section 16(1) of Real Estate (Regulation and Development) Act, 2016 upon the promoter/developers to obtain the said policy. The feedback received from the Government of India reveals that the stakeholders, especially the Developers Associations have flagged the need for standardization in the Title Insurance Products"

According to the circular, IRDAI has set up a working group (WG) to revisit the product structure of title insurance. The WG consists of a 12-member team which includes representatives of general insurance companies, Real Estate Regulatory Authority (RERA) and IRDAI. The WG has to submit its report in 12 weeks time from the date of the order.

The terms of reference of the working group are as under:
  • To examine the Legal and Regulatory Framework in place and its impact on the marketability of title insurance in India.
  • To study the structure of title insurance products available in the current Indian market and analyse the reasons for sluggish demand.
  • To develop a standard title insurance product suitable to Indian market and recommend measures to spur the demand for the product.
  • To suggest augmentation of reinsurance capacity within the domestic market.
  • To examine any other aspect relating to title insurance products in India.

What is title insurance?
Title insurance is an insurance of indemnity. It basically provides indemnity to developers and the subsequent home owners of the property against losses and risks related to defects in the title of the property. It even covers issues which are not discovered prior to the commencement date of the policy.

How title insurance helps home buyers?

Even though title insurance may not be available for home buyers of individual land, it will still be beneficial for the society home-buyers. This is because when the title insurance policy is bought by a builder by paying the premium amount, it has to be subsequently assigned to the association of allotees of the housing societies, who are the ultimate beneficiaries of the policy.

In case of any claim by a third-party in the future, the title insurance can be invoked and can indemnify all the home-buyers to the extent of the loss incurred by them. All the defence or legal costs incurred including any out-of-court settlement are covered under the policy. This is in addition to a written affidavit that a builder has to provide to RERA that the legal title to the land on which the development is proposed has legally valid documents with authentication of such title if the land is owned by another person.

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