21(116) 2015
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Events Coverage

Real Estate policy group considers risk insurance

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Philip Oldcorn, an English solicitor and a leading figure in the insurance market, was in Warsaw to speak to a meeting of the BPCC’s Real Estate policy group, organised with Dual Polska*, part of The Hyperion Insurance Group.

Mr Oldcorn explained that Dual was not a broker, but an underwriting agency – an agent of insurance companies and insurance syndicates, assembled within the Lloyd’s of London insurance market. Dual, on the basis of existing agreements with syndicates, underwrites risk on their behalf, collects premiums and handles all technical issues relating to binding coverage for the client’s risk.

Mr Oldcorn’s presentation covered real estate risk insurance, in particular title insurance. He also looked at Mergers & Acquisition insurance (including Warranty & Indemnity, Tax Indemnities and Litigation support insurance), political risk and terrorism.

“Title insurance is a big issue in UK – more than £100m a year is spent on it in the UK,” said Mr Oldcorn, explaining how it functions. “Title insurance can be seen as legal ownership insurance, covering boundaries, restitutions, leases, the right to own, develop and operate a building (including insurance for planning permission problems and building permits) - essentially, it covers asset value. It calms down investors in cases of mergers and acquisitions, where for example there may be some existing litigation. You can insure against drop in value of the asset, or to pay off third parties, or to cover lost rent.

“If the seller is insolvent, how can they give warranties? They cannot of course, but sellers can use these types of insurance to replace the warranties that they can’t give, in order to make the sale process more efficient and often increase the value of their asset. Banks won’t willingly lend as much in this situation. Yet the cost of the title insurance premium will be less than the cost of higher interest rate payment, or being offered a smaller loan. If you’re borrowing from a bank in the UK, you may find it has an allergic reaction to Poland and CEE. This means taking a risk you don’t want or can’t price, and you move it to someone who can carry it. This is where title insurance comes in.”

“Title insurance ensures you in cases where you discover that your neighbour owns a ransom strip, or that your underground car park encroaches on neighbour’s land. Warranty and indemnity (W&I) insurance doesn’t insure the asset – only the warranty in the Sale & Purchase Agreement. W&I typically covers 24-month period post-purchase, whilst title insurance covers you for five, ten years, or as long as property is owned.”

Mr Oldcorn said that companies can lower the premium by taking a higher excess on title insurance for first two years. “Taking our title insurance means you can get the deal back under control. At this stage, it’s more about satisfying the buyer and lender’s concerns and investment rules, so getting the deal done.” He talked about the specific circumstances where a property deal concerns distressed assets. A full title insurance policy, covering access, conduits and ownership reassures the lender. “Many property funds in Poland have gone bust, are winding up. As they close down, they are escrowing money against warranties they gave when they were trading. Title insurance serves as a wrapper for property fund closure and exit. Usually, it is the buyer purchasing the insurance policy,” he said.

Mr Oldcorn also covered political violence: “This is a difficult time for many regions of the world, with terrorism a feature, it is also an age of super-cautious investors – there are more and more barriers to investment decisions.” He looked at what’s going on in Ukraine: “Is it war or an act of terrorism?” This is something that businesses can insure against. Dual’s Political Violence products can be bought around the world. They are many and varied, including Lone Shooter coverage for mass shooting atrocities. Dual also offers specialist insurance products for Kidnap & Ransom or Extortion. Mr Oldcorn explained that Dual has response consultants on hand – “specialist consultants on a retainer, 24/7, ready to recover someone.” He explained that paying a ransom can have a negative long-term financial impact on a company and gave some hair-raising examples – fortunately all from Latin America!

Responding to questions from Real Estate policy group members, Mr Oldcorn said that the typical cost of title insurance was 10-30 basis points – or 10-30,000 zloty for every million zloty worth of property value. “Poland is cheaper to insure than Romania or Bulgaria – we don’t insure in Russia.”

Mr Oldcorn gave examples from France of a property deal where the hotel in question didn’t have proper planning permits for its top floor and spa! Dual had, however, insured the incoming bank.

Summing up, Mr Oldcorn said that title insurance was about the insurer taking the risk to allow the seller, the buyer and the lender to get on with the transaction.

[*Dual offers a large variety of corporate, commercial and personal insurance products – both to the business community, as well as to groupings of individual customers. Dual, which has recently entered the Polish market, does 30% of its business in the Americas, 50% in EMEA and 20% in the Far East. The Hyperion Insurance Group in Poland also includes Howden Polska, a sister company of Dual Polska, which offers general and specialist brokerage services and reinsurance placements.]

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