The rise of European title insurance
25th June 2020
Earlier in the year, during our traditional business breakfast event, DUAL Asset’s Emilia and Massimo took the opportunity to talk about the development of the European title insurance market in recent years.
It is not that long ago when it was common for local professionals in Europe to regard title insurance with a disappointing combination of little interest together with a healthy dose of suspicion. The most recurring comments from lawyers and brokers were: “Thank you, but while this might be appropriate for UK and US, it is not suitable for us…” or “We have the best land mortgage register and the best notaries in the world…” and so on. You get the picture.
Today that picture is changing. Instead, we see that title insurance is at least considered in a constantly growing number of transactions across Europe, even if not always purchased. Increasingly, this is also the case when international investors who are the traditional users of the product, are not involved.
So, what’s happened? This change has been helped considerably by the fact that international investors have brought their best practices into Europe, which in many cases included title insurance. Furthermore, the wider transactional risks insurance sector has witnessed a boost in the last five years and it is undeniable that this has also benefited title insurance, but there is much more to it than that.
As you know, the main purpose of title insurance is not only to transfer a risk, but also to add value to a transaction. This can be seen in a number of ways which are independent from the local legal system regulating the transaction. The cover can help remove the need to freeze money in escrow accounts. And without substituting the normal due diligence process, it can also help speed up the transaction which is important when timings are tight or the information available is inadequate. It can also substitute the seller’s representation when these cannot be provided or are not reliable, and it can remove the negotiation known issues and help provide a solution to systemic problems that do not have not a practical solution.
Another factor from our perspective is the launch of our “Title to Shares” product in 2016 which has filled a big market gap. Prior to this, in a share deal you could only insure the fact that the asset you were indirectly purchasing was owned by the target, but not your title to the target itself. It has also detached the product from a mere solution for real estate transactions and opened significant opportunities, especially in countries where we saw high resistance towards “Title to Asset” policies. An example of this would be where a German limited liability company cannot be verified with absolute certainty and a bona fide acquisition of title in shares is possible only to a very limited extent.
Last, but not least, while the name of title insurance did not evolve, the cover for the real estate did! Now, these policies not only protect the buyer from eviction risk, but also from issues relating to the permits, zoning and destination of use. This is typically where the dispute is not around the ownership of the asset, but on the ability of the owner to fully utilise it and to produce income.
So, whether your legal system is inspired by the Code Napoléon, Roman law, or based on the German BGB or indeed a combination of these, you might face situations where title insurance is simply more practical and cost-effective than any other solution enabling you to complete the deal in the most efficient way.
If you would like to read more about insurance solutions when facing systemic problems, we have an article about one of the best examples: Italian donation risk – read more here.