New Insurance Product to the Rescue of Real Estate Developers

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With the Real Estate Act, 2016 (RERA) fastening liability for any structural damage to buildings on to real estate developers, reinsurers such as GIC Re, along with other industry players, are seeking to develop a product to cover this risk. The Act, which aims at protecting the rights and interests of consumers and promoting uniformity and standardisation of business practices and transactions in the real estate sector, has opened a new line of business for direct (general) insurers and indirect (reinsurance) insurers, say industry experts. According to RERA, any structural defect or defects in workmanship, quality or provision of services, or any other obligations of the promoter, as per the agreement for sale, is brought to the notice of the promoter within a period of five years by the allottee (buyer) from the date of handing over possession, and it is the duty of the promoter to rectify the defect without further charges within a period of 30 days. And in the event of the promoter failing to rectify such defects within such time, the aggrieved allottees will be entitled to receive appropriate compensation in the manner as provided under the Act. Usha Ramaswamy, General Manager, GIC Re, said her company, along with a few reinsurers, has worked on and designed a ‘latent defect (insurance) policy’. It will cover the ‘defect liability’ of promoters of residential real estate projects as specified in RERA. The product will be launched once the IRDAI gives its approval. While general insurance companies will sell the ‘latent defect policy’ to players in the real estate sector, reinsurers will provide reinsurance to the former and since a couple of States are looking at increasing the time of the promoters’ liability clause from five years to 10 years, the ‘latent defect policy’ could be tweaked accordingly.