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Developer's Policy

The Developers Policy is used to insure development projects against identified title-related risks (we call them "Known Risks"). It was developed to help developers manage cash flow in cases where the total insurance premium is significant because of the overall developed value of the insured project.

Standard known risk cover for a development project is available on a 'pre-planning' or 'post-planning basis'.

The 'post-planning' basis for cover is the traditional market approach and means that the insurer's offer of insurance is conditional upon the insured obtaining planning consent without any material objections during the public consultation stage of the planning application.

The 'pre-planning' basis for cover enables the insured to place cover before the conclusion of the planning process. Because cover is effective at an earlier stage in the development project the insured can call on First Title to manage and remedy potential claims sooner, which may avoid issues escalating. All claims management activity is conducted at First Title's own cost (as is a standard feature of all of First Title's policies). Our experience shows that pre-emptive action can often avoid the worst-case scenario whereby a project is halted in its tracks.

The Developer's Policy is a variation on the 'pre-planning' basis and enables the insured to spread the cost of the insurance premium payable for pre-planning insurance cover, typically into two tranches.

What is covered?

  • Stage 1 - Cover is defined by the terms of the Developer's Indemnity Policy and the endorsement. The insured is insured against actual loss in the event that a claim crystallises in the period between commencement of the policy and immediately prior to the grant of planning consent. First Title may exercise its option to defend the insured.
  • Stage 2 - Cover is defined by the terms of the Developer's Indemnity Policy. The insured is insured against actual loss in the event a claim crystallises at any point immediately after planning consent for the intended development has been secured. First Title may exercise (or continue to exercise, as the case may be) its option to defend the insured.
  • Actual loss is defined at the point in time when a claim crystallises.

What is not covered

  • A pre-determined value of loss will not be assigned to the land in the event of a claim.
  • In the event that completion of the development is prevented, the policy does not indemnify the insured against loss of future profits.

What does this approach offer the insured?

The Developer's Indemnity Policy acknowledges that a significant element of an insured's loss is dictated by the value of the land - until planning consent is obtained, land value will not increase significantly.

The policy acknowledges that the loss of land value in the event of a claim before planning permission is obtained will be lower. Because of this, First Title is able to offer cover during this Stage 1 for a percentage of the full premium. The insured retains valuable cover in respect of the other indemnified heads of loss.

Provided the insured pays the Stage 2 premium, First Title's cover form commencement is seamless.

By establishing a clear and structured relationship between the insured and First Title from an early stage of a development project, insured and Insurer can work together effectively. The insured can continue with planning applications and preparations for development with the support of advice from First Title on best practice to ensure compliance with policy terms. Equally, the insured's obligation to keep First Title advised of circumstances that may result in a claim allows First Title to assess potential claims at the earliest opportunity and, where appropriate, take proactive steps to settle or cure the issue for the benefit of the insured. Lenders are indemnified up to the full extent of their lending at any stage during the project.

Inflation

Property prices seem more likely to rise than to fall, and customers may want to be protected against the risk that the policy amount will become inadequate. First Title deals with this in different ways for residential and commercial property.

Development and Commercial property

The basic policy makes no provision for inflation. This can be added, by endorsement, in any of 3 ways:

  • By adding increments of an agreed amount (say 5%) over an agreed period (say 10 years) to the policy amount, subject to an increase in premium, or
  • By having the customer estimate the expected growth in value over a notional period and insuring immediately for that policy amount at the appropriate premium, or
  • By giving our commitment to increase the policy amount to allow for an increase in value at a future date, on payment of an additional premium and on condition that the risk remains acceptable.

Each method had certain advantages and drawbacks. With the first, an annual increment may turn out to be insufficient if property prices rise rapidly. The second method accommodates for rapid initial rises in value but costs more in premium. The last method involves no initial outlay but may complicate settlement of the transaction and may not be available if the risk becomes unacceptable.

Index Linking

Customers may ask if First Title's policies are or can be "index linked". This is not possible, for three reasons:

  • If First Title suggested an appropriate index to which policy amounts were linked, this might not suit all our customers
  • It would be unmanageable to have each customer select its own index
  • Premiums have to be assessed when the policy is issued but index linking only works retrospectively.

Our approach to commercial inflation is flexible and practical.

"Index linking" is not a practical option.

 

 

Knowledge Base

Further Information and case studies: