Hidden Defects Insurance in Buildings 2025: Complete Guide to Warranty and Compensation Claims

Introduction: Why Hidden Defects Insurance Matters

Have you ever bought a new home only to discover wall cracks or foundation problems months later? This frustrating scenario used to cost thousands of Saudis millions of riyals annually and clogged courts with endless cases. But since 2021, everything changed!

Mandatory insurance on hidden defects in buildings has become a tangible reality protecting every property buyer in Saudi Arabia. This comprehensive guide will take you on a complete journey to understand your rights and how to get compensation if defects appear in your property.

💡 Important: Hidden defects insurance covers a full 10 years from the date of occupancy certificate issuance!

What is Hidden Defects Insurance?

Hidden defects insurance is a mandatory insurance system imposed by the Saudi government on all contractors in non-governmental sector projects. This system requires contractors to issue an insurance policy protecting property owners from any defects that may appear in the building after handover.

Difference Between Apparent and Hidden Defects

Before diving deeper, it's important to understand the difference between the two types of defects:

Apparent Defects: Defects visible to the naked eye at handover, such as obvious paint cracks, broken tiles, or window malfunctions. These must be reported immediately upon receiving the property.

Hidden Defects: Defects that cannot be discovered at handover and appear later with use, such as foundation problems, internal water leaks, structural weakness, or insulation defects. These are the defects covered by insurance.

What Does Hidden Defects Insurance Cover?

The insurance policy covers repair, replacement, and building reinforcement costs resulting from hidden defects, including:

Structural Works: Including foundations, columns, load-bearing walls, roofs, and beams. Any defect threatening the structural integrity of the building.

Non-Structural Works: Elements that don't bear the building's weight but are a fixed part of it, such as non-load-bearing interior walls and basic finishes.

Insulation Works: Waterproofing and thermal insulation if their defects cause damage to the building.

Electromechanical Works: In some extended policies, this includes plumbing, electrical, and HVAC works.

What Insurance Doesn't Cover

It's important to know the exclusions to avoid surprises:

Insurance doesn't cover damage from owner misuse, natural disaster damage (unless added as extra coverage), modifications made by the owner after handover, or defects that were apparent at handover but weren't reported.

⚠️ Warning: Any modification you make to the building after handover may void the insurance coverage for the modified part!

How Does the Insurance System Work? Responsible Parties

The hidden defects insurance system involves several parties, each with specific responsibilities:

The Contractor: Primary Responsible Party

The contractor is legally obligated to issue the insurance policy. They cannot obtain a building permit without proving insurance commitment. The cost ranges from 1% to 1.5% of total construction value.

Designer and Supervising Engineer

They bear joint responsibility with the contractor for design safety and construction supervision. If the defect results from a design error, the designer is held accountable.

Technical Inspection Company

Certified companies that inspect the building during construction phases to ensure compliance with Saudi Building Code. Their report is essential for issuing the insurance policy.

Insurance Company

The entity that issues the policy and bears compensation payments. Currently, Tawuniya Insurance leads the insurance pool (as of June 2025) with 17 participating insurance companies.

Owner or Buyer

The final beneficiary of the policy. Even if property ownership transfers, the policy remains valid and automatically transfers to the new owner!

Insurance Procedures from the Contractor's Side

If you're a contractor or property developer, here are the steps to follow:

Step 1: Register on Balady Platform

Access the Balady electronic platform and submit a building permit application. You'll be required to attach proof of hidden defects insurance commitment.

Step 2: Contract with Technical Inspection Company

Choose a technical inspection company certified by the Ministry of Municipal Affairs. They will monitor construction work and issue periodic reports.

Step 3: Apply to Insurance Company

Submit an insurance application to Tawuniya (or one of the companies participating in the insurance pool). You'll need: building permit, engineering plans, technical inspection contract, and project data.

Step 4: Pay Insurance Premium

The insurance premium is paid once and covers a full 10 years. Cost ranges from 1% to 1.5% of construction value, with a minimum of 7,000 SAR.

Step 5: Policy Issuance

After completing construction and receiving the final inspection report, the occupancy certificate is issued, and the insurance coverage period begins.

Buyer's Rights: What to Do When You Discover Defects?

Bought a property and discovered defects? Don't worry! Here's the complete roadmap to claim your rights:

First: Document the Defect

Before anything else, document the defect with photos and videos. Record the discovery date and keep any technical reports from a certified engineer or expert. This documentation will be your primary evidence.

Second: Verify the Insurance Policy

Confirm your property is insured. You can request a copy of the policy from the seller or developer. Verify: insurance company name, policy number, coverage start and end dates, and coverage scope.

Third: Contact the Insurance Company

Contact the insurance company that issued the policy (currently Tawuniya or one of the participating companies). Submit: policy copy, documented defect evidence, technical report (if available), and compensation claim request.

Fourth: Settlement Mediator Inspection

The insurance company will send a "settlement mediator" (certified technical and financial assessor) to inspect the defect and verify it's covered. This step is crucial!

Fifth: Approval and Repair Start

If the defect is proven covered, the insurance company approves the claim and repair procedures begin or compensation is paid. The advantage here is that repairs start immediately without waiting for liability determination!

What If the Insurance Company Rejects Your Claim?

In some cases, the insurance company may reject the claim or delay compensation payment. Here are the escalation steps:

Stage One: Complaint to Insurance Company

Submit a formal written complaint to the insurance company's complaints department. Keep the complaint reference number. The system requires the company to respond within a specified period.

Stage Two: Insurance Authority (Customer Protection)

If the problem isn't resolved, file a complaint with Customer Protection at the Insurance Authority through their website (ia.gov.sa). You'll need: policy number, claim details, insurance company's response, and supporting documents.

Stage Three: Insurance Disputes Settlement Committees

If the dispute continues, you can file a case before the General Secretariat of Insurance Disputes and Violations Settlement Committees (idc.gov.sa). These are semi-judicial committees specialized in insurance disputes.

Steps to File a Case Electronically:

Access the General Secretariat website (idc.gov.sa) and choose "Create Dispute Against Insurance Companies." Accept the terms and conditions, then enter your information as plaintiff and specify claim classification and value. Attach all supporting documents and submit the case. You'll receive a reference number to track the case.

📌 Tip: You can hire a lawyer specializing in insurance cases to represent you before the committees if the case is complex.

Documents Required for Compensation Claims

To ensure your claim is accepted and procedures are expedited, prepare these documents:

Basic Documents: Copy of insurance policy or certificate, ID proof (national ID or residence permit), property deed or purchase contract, and occupancy certificate.

Defect Documents: Photos and videos documenting the defect, technical report from certified engineer explaining the defect's nature and cause, repair cost invoices or estimates, and any previous correspondence with contractor or seller.

Additional Documents (if needed): Legal power of attorney if submitted by a representative, Civil Defense reports if the defect poses danger, and proof of previous claim submission to insurance company (mandatory before going to committees).

Common Problems and Disputes

From practical application, several recurring problems and disputes have emerged:

1. Claim Rejection Citing "Apparent Defect"

Some insurance companies reject claims arguing the defect was apparent at handover and should have been discovered. Solution: Keep a detailed handover report when purchasing the property proving its condition.

2. Compensation Payment Delays

Some companies' procrastination in paying compensation despite proven entitlement. Solution: File a complaint with the Insurance Authority, as the system requires companies to meet specific response deadlines.

3. Compensation Value Disputes

Disagreement on repair cost estimates between owner and insurance company. Solution: Request evaluation from a neutral third party, or escalate to the Settlement Committees.

4. No Insurance Policy

Some older buildings (before 2021) aren't insured. Solution: In this case, your right is directly against the contractor, and you can sue them through general courts.

5. Coverage Period Expiration

Defect appearing after 10 years. Unfortunately, in this case, insurance doesn't cover the defect, and the legal option remains against the contractor if gross negligence is proven.

Insurance Cost: Who Bears It?

Common question: Does the buyer bear the insurance cost?

Answer: Legally, the contractor is obligated to pay the insurance premium. But practically, this cost is added to the final property price, and thus the buyer bears it indirectly.

But look at the full picture: A cost of 1% to 1.5% for 10 years of protection is a very profitable deal compared to the cost of repairing a structural defect that could reach hundreds of thousands!

Cost Example:

If the villa construction value is 1,000,000 SAR, the insurance premium ranges from 10,000 to 15,000 SAR for full 10-year coverage. That's less than 1,500 SAR annually for complete protection!

Approved Insurance Companies

Hidden defects insurance is managed through an "insurance pool" with 17 licensed insurance companies participating. Currently:

Leading Company (since June 2025): Tawuniya Insurance - manages the program and issues policies on behalf of the sector.

Note: Malath Insurance led the pool from 2020 to June 2025, then leadership transferred to Tawuniya for 3 years.

To apply for insurance or file a claim, you can contact Tawuniya Insurance through their official website or call center.

Golden Tips for Buyers

Here are the most important tips to protect yourself:

Before Buying: Request a copy of the hidden defects insurance policy before completing the deal and confirm it's valid and covers 10 years from the occupancy certificate date. Review the coverage scope carefully and keep a copy of the policy in your property file.

At Handover: Conduct a comprehensive inspection tour with a specialized engineer if possible and document the property's condition with photos and videos. Record any observations in the handover report and don't sign final handover until after careful inspection.

During Warranty Period: Monitor the building periodically for any abnormal signs like cracks, moisture, and water leaks. Report any discovered defect immediately - don't wait! Keep a record of maintenance and repairs you perform, and don't make structural modifications without consultation.

When Discovering a Defect: Document the defect immediately with photos and dates and get a certified engineer to assess the defect. Submit your claim to the insurance company as quickly as possible and follow up on the claim regularly - don't give up at the first rejection.

🔑 Golden Rule: Documentation, documentation, then documentation! Every photo and every document could be crucial in getting your rights.

Frequently Asked Questions

Is insurance mandatory for all buildings?

Yes, it became mandatory for all non-governmental buildings as of end of 2023, including residential buildings up to 3 floors.

What if I bought an old property without insurance?

Buildings constructed before system implementation (before 2020-2021) may not be insured. In this case, your right is directly against the contractor according to defect warranty provisions in civil law.

Does insurance transfer to the new owner?

Yes! The insurance policy is tied to the building, not the owner, and automatically transfers when the property is sold.

What's the maximum compensation?

Usually, the maximum is the property's full reconstruction value, according to conditions specified in the policy.

Can I sue the contractor despite having insurance?

Yes, insurance doesn't exempt the contractor from responsibility. You can sue them independently, especially if damages exceed insurance coverage.

How long do claim procedures take?

Simple claims may be resolved within weeks. Complex cases reaching committees may take several months.

Conclusion

Hidden defects insurance is a qualitative leap in protecting buyer rights in the Saudi real estate market. Buyers are no longer alone facing construction defects - they now have an insurance umbrella protecting them for a full 10 years.

The key is knowing your rights and claiming them. Don't hesitate to submit your claim if you discover a defect, and don't give up if you face initial rejection. The system is on your side!

And always remember: Prevention is better than cure. Choose a reliable developer, verify the insurance policy before buying, and document everything from day one.