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Reforming Title Insurance Industry Should Be State Priority

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The Tampa Tribune

Published: September 17, 2007

Floridians pay among the highest premiums in the nation for title insurance, a unique line of insurance that protects homeowners from people laying claim to their property.

Home buyers paid an average of $2,050 last year - nearly 14 percent of closing costs.

Some paid premiums 130 percent higher than what's charged in neighboring states. So it's welcome news that Florida regulators are taking a hard look at reforming the title insurance industry.

As it stands, two insurance companies sell about half of the policies in Florida, and six sell 99 percent. As a result, competition is limited in a highly lucrative business.

Payouts on title claims - possibly from unrecorded liens, defects in public documents or forgeries - run relatively small, averaging just 3 cents on every premium dollar.

Tellingly, industry profits rose 368 percent between 1995 and 2004.

The state is right to review the rate-setting process and whether the state should be setting rates at all. Consumers may be better served if the price for title insurance was determined on the free market.

Judging from a four-hour hearing last month with officials from the Florida Department of Insurance Regulation, the state means business on reform.

Title insurer's representatives reluctantly appeared after being subpoenaed. They complained that their business has gone south, the result of a slumping real estate market. But they acknowledged lucrative profits in past years, far beyond what was seen in other states. Now, they say they are being forced to downsize.
Industry officials acknowledged that two-thirds of title searches require little work, yet consumers pay the same amount charged for complex searches. They could not say with any certainty what, exactly, agents do to ensure clear titles on properties. They simply emphasized how complicated the process can be.

Most consumers buy few properties in their lifetimes and know little about the title insurance business. They'd be shocked to learn that title insurance companies routinely pay referral fees and other incentives to real estate agents for steering business their way, and that the state has done little to clarify a loophole that seems to allow the practice.

It's wrong to steer consumers to a title company that has a financial arrangement with the builder or real-estate agent. An honorable agent would insist that home buyers compare prices.

Things are not always as they appear, but it sure looks like title insurance companies are ripping off consumers.

The state has a responsibility to make companies prove their policies are not overpriced.

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