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Title insurance games

Providers have almost no risk, so Florida consumers are paying inflated rates for a product that isn't really insurance at all.

By TIMES EDITORIALS
Published July 19, 2006

Florida property buyers spend more each year for title insurance than doctors do for medical malpractice, but the title game has gone largely unnoticed in Tallahassee. As a new state study reveals, the result is that consumers are forced to pay inflated rates for a product that is not really insurance at all.

This game needs to come to an end, and the report provides at least three compelling numerical reasons:

1) Florida home buyers are paying 136 percent higher premiums, or more than double, than their counterparts in other states.

2) The average bill, $2,048, now amounts to 14 percent of closing costs.

3) Industry profits increased by 368 percent from 1995 to 2004.

Title "insurance" is required by mortgage lenders to protect them in case ownership ever ends up in dispute, but the reality is that the companies research the deed first and offer the policy only after they determine the title is clean. The policy covers only past problems and not future ones. As such, the company has almost no risk.

The economists who compiled the research for the Florida Office of Insurance Regulation, in fact, had to use a magnifying glass to assess that risk. In 2004, the "modified loss ratio" was 3.2 percent. In other words, only 3 cents on every premium dollar was paid out to cover losses. By comparison, property and casualty insurance companies paid out 87 cents on each dollar.

This gets even worse. Title insurance is controlled by only six companies in this state, and their cost to research the deeds and supply the services has only decreased. Those costs have been reduced, in part, because the public has invested heavily in advanced technology so that court clerks can provide the deed and title information in an easier and more readily available format. The companies profit.

Insurance Commissioner Kevin McCarty says he will use the study to establish "fair and accurate rates" for title insurance, and he needs to move with dispatch. Regulators and law enforcement officials in other states have uncovered fraud and collusion within the industry, and the new Florida report speaks to the uncomfortable combination of business variables at play.

"Since the consumer has little knowledge of title insurance, title insurance companies and agents direct their energy towards the recommenders (homebuilders, lenders, brokers, etc.) and ignore the consumer," the report states. "This creates an incentive to give kickbacks, referral fees, and other types of payments to recommenders to secure their business. This could have the effect of driving up the cost to the consumer."

Whatever the cause, Florida consumers are paying indefensibly high rates for title insurance. This is one real estate bubble that needs to burst.

[Last modified July 19, 2006, 01:12:12]