09 November 2022
Legal Indemnity Insurance Update
As predicted in our February 2022 update, on account of an increase in claims, we have seen insurance rates within the legal indemnity / title insurance market slowly increasing, particularly with regards to Rights of Light coverage. Simultaneously we are seeing capacity reduce further in the title to shares insurance market -although the title to real estate has not been affected.
As suggested in our last update, we are now seeing more Agreed Conduct policies, and Rights of Light insurance policies are changing too – which we discuss further below. New policy types are emerging in response to the volatile economic climate; providing insureds the flexibility needed in order to provide balance sheet protection when developing, acquiring or lending against assets.
Policy Update: Rights of Light
There has been an increase in claims and ‘ambulance chaser’ firms are particularly targeting developments with residential properties nearby. This has changed the style of policy offered; excesses are now generally the same, if not more, than book values in Rights of Light reports. The strategy has now largely moved to an agreed conduct style of cover, rather than “wait and see”, meaning that the insured will need to negotiate a release within the excess.
This means that the policy is now essentially acting as a “catastrophe” policy, whereby the policy responds in a worst-case catastrophe scenario for the insured, such as failure to negotiate the release of rights, or an injunction.
We have seen claims paid this year that are over three times the book value reported and though this is not the norm, it is something to consider when considering policy options.
Policy Update: Title to Shares / Real Estate
The title to shares market has taken a hit as one provider has reduced capacity. However, there still remains plenty of available capacity overall, with other insurers able to sit in excess of policies. Title to real estate has not been affected, and we are still able to access over GBP1bn of cover with a single insurer.
Pre-planning / Post Planning policies
Due to the nature of pre and post planning policies, the former is riskier for the insurer and carries a higher premium. Post planning policies are less risky for insurers and the premium reflects this. The risk in choosing whether to insure pre or post planning lies with the insured. Any representations made during the planning process can spook insurers, leading to them excluding cover for individuals making representations against the insured risk in the proposed development. In extreme cases we have witnesses insurers pulling cover altogether. This is something to consider, as a potential small saving in choosing to wait for a post-planning policy can become a large cost later in the form of higher premiums and excesses being applied to the policy, if there are representations regarding the risk to be insured.
Agreed Conduct Policies
This is an area where we are seeing insurers able to structure cover for known risks where the insured is keen to negotiate the risk away and therefore the policy acts as catastrophe cover. Insurers will need to understand what the cost of negotiating a settlement will be and what this is based on, plus any legal arguments that the insured may have. This is allowing insurance to be used where there is a transaction / development / financing that would otherwise be held up, if for instance, a claimant came along before the inception of an insurance policy.
Read more here: Are the Minerals Mine? - Real Talk (ajg.com)
Policy Update: Certificate of Title Top Up
An embryonic policy that “tops up” a certificate of title during a financing. Where professional indemnity insurance rates have been rising, some lawyers are looking to limit their liability, including caps on their certificates of title. Some lenders are not comfortable with this and borrowers are faced with increased costs. This policy sits in excess of the liability cap to cover losses in excess of the certificate of title.
Read more here: Certificate of Title Top Up Insurance - Real Talk (ajg.com)
Policy Update: Portfolio Title Insurance
There has been a lot of discussion in the market about this policy type and throughout the year we have been seeing an increase in uptake. This covers the insured for known and unknown risks, sometimes with little due diligence. This is being utilised in large portfolio transactions and where there is financing / refinancing.
Read more here: The Rising Popularity of Title Insurance - Real Talk (ajg.com)
Insurer Security Rating Update
Gallagher have a dedicated carrier management team, which monitors insurer financial security. Given that a lot of title policies are in perpetuity, this is extremely important for our clients.
We have listed below the financial security of the main providers in the UK:
Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.