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State reviews title insurance

U.S. report raises serious questions about oversight, premium pricing.

By Tom Zucco, Times Staff Writer
Published August 24, 2007


Cozy relationships between title insurance companies and real estate agents, builders and lenders, and the question of who ends up with premium dollars were at the heart of a four-hour public hearing in Tallahassee on Thursday as Florida regulators began to pull back the curtain on the little-known title insurance business.

The goal: To determine how extensively Florida should regulate the industry.

Facing regulators were representatives of the nine companies that write most of the title insurance in the state. The companies were sent subpoenas this month in response to studies that found, among other things, that Florida homeowners are paying premiums as much as 136 percent higher than in neighboring states, that industry profits rose by 368 percent from 1995 to 2004, and that in 2004, only 3 cents of every $1 of premium paid was spent to cover losses.

Title insurance is usually required in real estate sales to protect buyers from such things as liens, unpaid taxes or other problems in gaining a clear title to a property. Mortgage lenders require it, but the buyer pays the premium, which last year averaged about $2,050.

In their opening statements, industry officials argued that these are lean times for the title business. The slump in the housing market and a skyrocketing number of mortgage fraud cases have forced many title companies to cut staff. While rates have gone up, they argued, costs have doubled.

"It's not just a search process," said John Dwyer, vice president of Santa Ana, Calif.-based First American Title. "There's a ton of other work involved."

But Florida has the first or second highest rates in the nation, countered Steve Parton, general counsel for the state's Office of Insurance Regulation, and there have been problems with the misuse of premium payments, according to the state's analysis.

Florida is not alone in its concerns. A 2006 report by the U.S. Government Accountability Office, the investigative arm of Congress, raised serious questions about the oversight, pricing of premiums and lack of competition in the title insurance industry.

On Thursday, Tallahassee regulators wanted to know what independent agents were charging, and how they are monitored.

"You have no way of knowing the premium collected by the agent?" Parton asked. "You don't know if premiums may be overstated?"

Industry representatives said they perform periodic audits of independent agent files and rely on agents to comply with state law. But regulators were looking for a more concrete answer.

"That makes me wonder," said Susan Dawson, OIR's deputy general counsel, "whether you are in complete compliance with the subpoenas."

Industry officials were also asked why the same rates are charged for title insurance no matter what the value of a home. "Wouldn't it be appropriate," Parton asked, "to treat this as a service and charge what the market will bear?"

First America's Dwyer answered that the rates are averaged, so that no one is paying too much or too little.

Much of the focus was on whether consumers are given a choice of title insurers or simply steered to a company that may have a financial arrangement with the lender, builder or real estate agent.

"The prevalence was widespread until the market took a downturn," said R. Norwood Gay III, vice president of Orlando-based Attorneys' Title. "We've seen a significant falling off of that activity."

Steve Alexander, an actuary for the Insurance Consumer Advocate's office, said the fundamental flaw in the system is that the person paying for title insurance the homeowner is not the same person who is requiring it (the lender or builder).

And then there are allegations of kickbacks. Alexander cited Colorado, where as much as 50 percent of title insurance premiums were funneled back to home builders disguised as reinsurance premiums.

"The title insurers are really in a bind because the builders, Realtors and mortgage brokers are all demanding some kind of compensation," Alexander said, "and in order to get their business, the title companies have to pay it."

The solution, Alexander said, is to require lenders, not homeowners, to buy title insurance.

Another hearing will be scheduled soon, Parton said, and he linked the state's actions to its ability to get good data from the industry.

Acknowledged Dwyer: "I know you have been frustrated trying to get the data."

Tom Zucco can be reached at or (727) 893-8247.

Fast Facts:

What's next?
State regulators are required to review the title insurance industry every three years. Thursday's public hearing was one step in that process. Regulators plan at least one more hearing in the coming weeks.

[Last modified August 23, 2007, 22:51:56]

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