Insurance policies: Fill your boots

There are a number of insurance policies that are available at a reasonable cost, but which are likely to increase in price, and might even disappear from the market altogether.

As these policies become more popular, the incidence of claims is likely to rise, and so insurers are likely to look more closely at their products and their pricing – and indeed the wisdom of selling such products at all.

If policies such as these are critical for a development, then developers, investors and mortgage lenders would be wise to buy them sooner rather than later.

The following three insurance policies are examples of those that have witnessed a surge in sales owing either to changes in the law or the economic climate, and which therefore may either shortly rise in price or be removed from sale altogether.

Common land policy

The unprecedented rise in sales of this type of indemnity policy is indicative of the dearth of affordable development land, combined with the effect of the Common Law Act 2006, which came into force last year.

The law stipulates that if anyone lays a successful claim to common land within five years of a development, it must be returned to common land use. Of course, this could result in a lender or investor being significantly out of pocket and may be terminal for the developer.

For example, one developer has planning permission to redevelop a former council estate in Wales, in a project worth £7m. The estate, however, has areas of land between the blocks of flats that residents use as recreational areas. The developer is concerned that they might lodge a claim that these green spaces are common land which, if successful, could seriously lower the value of the development. Even if the developer chooses to sell the land with planning permission, without a common land indemnity policy the possibility of this claim arising would affect its exit strategy and the value of the sale.

Deed of gift insurance

With the number of company insolvencies on the rise, lenders are tightening their criteria

This policy protects a lender, and in some instances a property owner, from liabilities arising from a property sale made for less than its value.

This type of transaction is a common means of avoiding certain liabilities and safeguarding assets by moving them around, and it is on the increase. Such restructuring deals are usually legitimate, but should a company in trouble go into liquidation and the liquidators find evidence of under value transfer deals done to avoid debts within the past five years, then lenders can find the deals being recalled. As insolvencies are on the rise, lenders are tightening their criteria and increasingly demanding this cover be bought for transactions completed at under value.

County court judgments are seen as an early indicator of corporate distress, alongside the late payment of invoices. The number of county court judgments issued has increased fivefold over the past two years in the property sector and the Credit Management Research Centre predicts that insolvencies will rise by more than 20% in the next two years, bringing it to the highest level since the dotcom bubble burst in 2001.

Titlesolv.com has seen sales of this policy double since this time last year.

Mines and minerals

Mining companies have a right to extract minerals found beneath a property. In the past this eventuality would have been flagged up in the searches, and most coal reserves left in Britain have mostly been unavailable anyway, being too difficult or costly to mine. However, developments in mining technology have made previously abandoned coal reserves more valuable. The likelihood of lenders, developers, owners or investors falling foul of right-to-mine laws is therefore now a distinct possibility and as a result sales of these policies have risen dramatically.

These three insurance policies are all still available from some insurers, but the number of those willing to provide them is dwindling as the probability for claims increases and the risks become too great for insurers’ appetites. If you need this type of cover get it while you still can.