In an effort to prepare themselves for dealing with an increase in professional indemnity claims from mortgage lenders on the basis of inflated valuations, Countrywide and LSL Property Services have decided to set aside funds of £22.8 million.
If they believe the original valuation was incorrect and have then lost money from a sale at a lower price, lenders make professional liability insurance claims on repossessions.
In order to cater to possible claims in the future, LSL decided to increase its 2009 provision of £7.5 million to £10.9 million in 2010. Countrywide’s 2010 provision was for £11.9 million, though it did not set aside any funds the previous year. However the firm estimates such a provision would have been approximately £3 million.
Countrywide stated in its 2010 financial results that the volume of business liability insurance claims it received last year has led to the decision to reassess liability potentialities from claims in the future. Sub-prime lenders were the majority source of these claims, Countrywide added.
While Countrywide stated that the group defends every claim in a robust manner, it also stated that – taking into account the information that is available as of the date on the balance sheet, reserves had been set where appropriate for these claims.
LSL subsidiary e.surv’s business development director, Richard Sexton, stated that the claims increase is both an issue the industry has to deal with and also is a consequence of the current economic landscape.
Mr Sexton stated that he has hopes that the economic cycle has peaked. However as claims track the number of repossessions strongly, an increase in repossessions will lead to more claims activity.