Legal Indemnities

The number of residential property sales is widely expected to fall due to the recent contraction in the mortgage market and higher interest rates. This will, in turn, limit the demand for legal indemnity policies arising out of sales. Conversely, as a result of the general economic situation and rising inflation, we anticipate an increase in claims against lender policies due to a higher risk of borrowers missing mortgage payments or entering negative equity as property prices fall. Insurers can therefore expect low premium income growth for the residential sector unless the economic outlook improves.

Recent history has shown that when homeowners cannot move on, they extend and improve their existing dwellings. Notwithstanding the gloomy financial outlook, we anticipate some of the nation’s homeowners will continue to spend the nest eggs that they built up during the COVID-19 pandemic on building works and other home improvements. This will filter down to the legal indemnity sector through the issue of restrictive covenant and building regulations policies. More building work is also likely to lead to more neighbour disputes. Accordingly, we also expect the upward trend for claims against these policies to continue.

The difficult economic climate will create opportunities for investors to purchase commercial portfolios at a discounted price as a result of an increasing number of distressed sales arising out of insolvency. Sellers will put pressure on investors and lenders to minimise transaction timescales to enable them to release equity quickly and pay creditors. Rather than relying on the more lengthy and costly process of due diligence, we anticipate there will be an increasing demand for multi asset portfolio title insurance covering a suite of known and unknown title risks.

An estimated 95,000 registered titles to land in England and Wales are owned by 35,000 overseas entities. The new Economic Crime (Transparency and Enforcement) Act 2022 imposes transparency obligations on overseas entities that already own property in the UK, or wish to acquire it, requiring them to disclose and register beneficial owners. Lenders and investors may look to indemnity insurance to overcome risks created by the retrospective provisions of the Act. From a claims perspective, land transactions to resolve title defects will encounter hurdles from an ESG perspective where insured customers cannot enter into transactions with unregistered overseas entities.