News Middle East01 Dec 2019

Saudi Arabia:Implementation of standard IDI policy imminent

01 Dec 2019

The Saudi Ministry of Municipality & Rural Affairs and Saudi Arabian Monetary Authority (SAMA) have jointly been developing a new standard inherent defects insurance (IDI) policy, which is anticipated to be made available at some point from this month or early 2020, says the international law firm HFW.

It has also been agreed that in the initial phase of implementation, the requirements will apply to all private sector construction projects in the five major municipalities, namely Mecca, Medina, Riyadh, Jeddah Governorate and the Eastern Province. The first phase will last for a period of three years; thereafter there will be a review phase and then the final requirements will be applied across Saudi Arabia.

In a commentary, HFW says that with the number of developments announced recently in Saudi Arabia, the KSA construction industry is going through a dynamic and exciting phase. It may therefore come as no great surprise that the regulatory authorities are taking an increasing interest in insurance in this sector.

Tracing developments leading to the new standardised policy, HFW notes that in June 2018, the Ministry of Municipality & Rural Affairs introduced plans for a new law making the purchase of inherent defects insurance mandatory for all construction projects within the private sector. This was subsequently put into effect as a Resolution of the Council of Ministers (Resolution No. 509 issued on 5 June 2018).

The resolution provides (in summary) that:

  1. Contractors involved in private (i.e. non-governmental) sector projects are obliged to insure against latent defects in buildings or other structures, whether the defect is structural or otherwise;

  2. SAMA will approve a standard wording for an inherent defects insurance policy; and

  3. The Minister of Municipal and Rural Affairs will determine the scope as regards:

    1. Which buildings/structures are intended to be captured by these obligations;

    2. The geographical scope of the obligations; and

    3. The required period of cover.

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