“Capped Conveyancing” insurance – a new approach to managing risk in residential conveyancing
Mainprice King, in association with DUAL NZ Limited (a part of the world’s largest underwriting agency and backed by Lloyd’s of London’s largest international cover holder) has developed a “Capped Conveyancing” insurance policy.
For one low premium per policy, per conveyancing transaction (provided it is purchased for all your New Zealand conveyancing transactions), lawyers and their clients can now better manage their risks in residential conveyancing than ever before.
Jeff Williamson of Mainprice King, which is launching the new service in New Zealand, answers some questions about Capped Conveyancing insurance policies.
“Risk management” is a term often used, but what does it actually mean?
Risk management is minimising the problems that can occur in residential conveyancing and the professional indemnity claims that often arise out of these transactions, and then constructing a practical solution that lessens the risks in the process for both lawyers and their purchasing clients.
Capped Conveyancing insurance grew out of Mainprice King’s recognition of a gap in the market and so it has introduced a new risk management strategy for lawyers in New Zealand based on residential conveyancing products which have been operating successfully in the United Kingdom for many years.
How can lawyers reduce risk in the residential conveyancing process?
Professional indemnity claims are a real concern for most lawyers because of their adversarial nature.
At risk is a lawyer’s professional indemnity excess, unproductive time taken in dealing with the client and insurer and potentially a subsequent increase in his or her professional indemnity premium. Ultimately, lawyers may lose a client’s future work because of the adversarial nature of these claims.
There can be many risks of which a lawyer may not be aware at the date of settlement of a property. These can include:
- LIM reports that do not expose encroaching boundary structures;
- vendor warranties that are not true;
- unwitting breaches of restrictive covenants affecting height; or
- past breaches of council covenants.
Capped Conveyancing insurance was developed to cover as many of these problems as possible.
If a problem arises post-settlement, then, if it is covered by the policy, the conveyancing insurer just focuses on fixing the problem without the need to find any fault.
Using Capped Conveyancing insurance, lawyers are therefore able to substantially “de-risk” their residential conveyancing transactions and benefit in terms of both professional indemnity and dealings with their clients.
Who is covered by Capped Conveyancing insurance?
Capped Conveyancing insurance is taken out by the lawyer (who pays the premium) but it also includes the interests of the lawyer’s client and the client’s mortgagee. To ensure a client is fully aware of the cover, the lawyer should advise the client (ideally by way of their engagement letter) that the client is included in the lawyer’s Capped Conveyancing insurance programme as part of services provided. Mainprice King can supply a suggested wording to use.
What risks are covered by Capped Conveyancing insurance?
Risks covered include:
- any adverse matter not revealed or identified by LIM or title searches and enquiries (including fraud);
- prior non-compliance with registered covenants/encumbrances;
- lack of building consent or unauthorised additions;
- boundary disputes;
- seller misrepresentation; and
- unknown rights over the property.
What are the benefits in having cover for each residential conveyancing transaction?
When a problem is discovered, instead of working against their client, a lawyer who has Capped Conveyancing insurance will be able to provide a solution.
Other benefits include:
- better quality client offering;
- competitive advantage over practitioners who do not have Capped Conveyancing insurance;
- improved risk management;
- reduced exposure to professional indemnity claims (and therefore a reduction in PI premiums after a period of use);
- no excess payable (as there is under professional indemnity cover);
- the insurer waives subrogation rights against the lawyer where an innocent mistake has been made;
- lawyers maintaining their billable hours by not having to be involved in defending professional indemnity claims; and
- lawyers potentially securing additional fees from the Capped Conveyancing insurer where the solution to the problem is a legal one.
Capped Conveyancing insurance will create a positive transformation in residential conveyancing and re-define how professional indemnity will be used in the future.
What is the cost per transaction? Is it high?
Quite the opposite. The Capped Conveyancing insurance policy (limited to claims of up to $100,000 – overseas experience in the United Kingdom suggests that only cases of fraud are likely to exceed this amount) is available to lawyers for only $56 plus GST or, with the ADLS member discount applied, only $50 plus GST, per policy, per conveyancing transaction.
However, this low premium is conditional on the lawyer purchasing a Capped Conveyancing insurance policy for each and every conveyancing transaction he or she does.
How is the Capped Conveyancing insurance policy arranged?
This is a simple process that is done via an online portal – it is easy and secure.
The lawyer registers for access to the portal and agrees to purchase a Capped Conveyancing insurance policy for each of their residential conveyancing transactions.
Using the portal, the lawyer enters each purchaser’s details, the property’s details and the settlement date and answers a few simple questions about the property.
The lawyer will immediately be emailed an insurance certificate and policy wording to back up the cover. It is that easy and secure.
How long does the policy last?
Each Capped Conveyancing insurance policy lasts for as long as the purchaser is the owner of the property, or if the purchaser transfers the property within the family group or to a Family Trust, and includes any mortgagee’s interest.
Has this cover been trialled in New Zealand?
A pilot scheme has been undertaken by an Auckland law firm over the past eight months.
The firm found that all its clients appreciated the additional benefits provided by this insurance and responded positively to being included under it.
Additionally, the firm’s professional indemnity insurer was able to apply a discount to its professional indemnity premium when it was recently renewed in recognition of the “derisking” effect of the Capped Conveyancing insurance coverage.
What happens if a lawyer only wants conveyancing insurance cover for a one-off transaction?
In such a case, Mainprice King will be able to arrange a one-off “Full Value” policy, with the sum insured being the purchase price of the property. The cost of a Full Value policy is .05% of the purchase price with a minimum of $300 (plus GST), including the ADLS discount. If the lawyer is not an ADLS member, it is .056% of the purchase price with a minimum of $340 (plus GST).
For example, a property with a purchase price of $750,000 would cost $375 (plus GST) for a member (or $420 plus GST for a non-member). This still represents considerable value.
What if a risk comes up during due diligence?
If an issue is identified as part of due diligence that is within the earlier-mentioned insured risks (such as an incorrect cross lease plan, unpermitted building work and access over land not owned by the vendor), this may be able to be insured on a “Full Value” policy basis.
If lawyers are registered to use the online portal, they will be able to obtain a quotation from the portal. If not registered, a lawyer can simply contact Mainprice King to provide the details of the purchaser, the property and the specific risk to be covered and Mainprice King can then ascertain whether cover can be obtained and on what terms and conditions. Most identified specific risks appear to be insurable. The premium for this is also discounted if the lawyer is an ADLS member.
The availability of cover for such specific risks enables the lawyer to discuss the problem and provide a simple solution, which may have been difficult or costly to find in the past. The client can then choose to pay for this additional cover or decline and self-insure. Whether the client takes the cover or not, the lawyer has then discharged his or her responsibility for this risk. An added bonus is that any future purchasers, owners or mortgagees are also covered for that specific risk as the cover runs with the land, thus avoiding any issue when the property is resold.
Who underwrites the Capped Conveyancing insurance policies?
The security behind Capped Conveyancing insurance is Lloyd’s of London which has an “A+ Strong” Standard and Poor’s rating. The policies are underwritten by DUAL Asset Underwriting in London on its behalf and are available in New Zealand through DUAL New Zealand Limited. The DUAL Group is the world’s largest international underwriting agency and a Managing General Agent for Lloyd’s.
For more information, please contact Mainprice King directly on 09 336 1006 or by emailing email@example.com. Alternatively, visit the ADLS website www.adls.org.nz.
This Insurance is promoted by Mainprice King Chartered Brokers Limited, a Registered Financial Services Provider. In providing a link to and information regarding Residential Capped Conveyancing insurance, ADLS is not operating as an insurance broker.