Idaho title insurance companies are frowning on a new federal lawsuit filed in Washington that accuses title insurers of colluding to keep prices artificially high, one of a slew of lawsuits filed against the industry over the last few years.
Industry officials say many of the claims against title insurance companies show a lack of understanding about the services they provide to lenders and home-buyers and why title insurance policies are priced the way they are. “These kinds of lawsuits that are frivolous like this only drive up the cost for consumers,” says Michelle Sweet, a spokeswoman for the American Land Title Association. “We’re going to defend them. We’re going to defend them to the hilt.” Title insurance protects both lenders and homeowners against losses from ownership disputes that can arise during land sales because of unnoticed or faulty public documents. Agents collect and examine public records, checking for things like forged signatures and liens, to establish ownership. Idaho law, as in most states, requires title companies to submit proposed rates to the state insurance department director for approval. A title insurance policy on a $100,000 home might cost about $600. The Washington lawsuit, which seeks class-action status, claims that title insurers have agreed not to compete on price. The suit says that real estate agents, lenders and builders mostly decide which title companies to use, rather than the consumers who take out the policies, and that title insurers rely on gifts and kickbacks to obtain business, according to a summary of the suit in the Seattle Post-Intelligencer. A similar lawsuit has been filed in New York. Sweet, of the American Land Title Association, says consumers often do rely on lenders and real estate agents for a recommendation but that it’s illegal for title insurers to provide referral fees or gifts to real estate middlemen in exchange for business. “The majority of the folks that are out there abide by the law,” Sweet says. “There are a few bad actors that have broken the law.” In Idaho, three Boise title companies each paid a $150 fine last year for providing gift certificates that were used as door prizes during a showcase of homes, according to orders by the Department of Insurance. They were found in violation of a 2007 rule issued by the department to address “an accumulation of past and present abuses that had previously gone unreported.” Title insurance companies in a number of states have faced other class action suits that accuse them of charging more than allowed by law for policies when people refinance their homes. A case filed in Idaho last year has not yet gone to trial. The Washington antitrust lawsuit says the rates that consumers pay for title insurance is out of proportion to the cost of providing the insurance and notes that title insurance companies’ average payout to customers represents about 5 percent of the total premiums the companies collect, whereas it’s about 80 percent for property insurance policies. In Idaho, title insurance companies paid out $3.6 million in claims in 2006, which is 2.5 percent of the total $143 million in premiums collected, according to the Idaho Department of Insurance. That compares to a ratio of 79 percent for life and health and 52 percent for property and casualty for Idaho insurance companies in 2006. Title insurers, though, say the comparison is unfair because title insurance pays for a significant amount of work to protect against errors that have already occurred, while other kinds of insurance protect against the possibility of future loss. Title insurers spend about 90 percent of the money they collect from premiums on searching, scanning and analyzing public documents. Other insurers simply use actuarial formulas to calculate future risk and spend about 20 percent of the premiums they collect to issue policies, Sweet said. Idaho title insurers also say their financial health depends on the total volume of land sales in the cyclical real estate market. “It’s a very, very competitive industry and a very, very tough industry to make any kind of a profit whatsoever,” says Ric Eborall, an Idaho Land Title Association board member and an executive with Alliance Title & Escrow Corp. in Boise. “Sure, during the up times you do make those profits, but they help you to sustain the real estate cycle downturns. It’s the prudent, financially sound companies that are able to sustain themselves through these downtimes and be there for their insurer when they do have a legitimate claim against their policy.” The Idaho Department of Insurance, which reviews and approves title insurance prices in the state, says the ultimate power lies with homeowners. “As a consumer, you have a right to look around and to make sure that you’re getting the best product for you,” said spokeswoman Tricia Carney. “You have to be proactive and look out for yourself. If you think there’s a problem look someplace else.”
5 Comments
Mr. Eborall is correct. The comparison to other forms of insurance is not fair. Property insurance is paid annually. Title Insurance is only paid ONCE and protects the lender for the life of the loan and owners for so long as they own, and even after they sell, if they give a Warranty deed to their buyer.
Title Insurance is a difficult business, requiring lots of skill and knowledge, and a significant cost for the research of public records. One time charges are quite reasonable for such a potentially large loss - the price of a home.
Comment By Title Lady Tuesday, April 15, 2008 @ 7:58 AM
Title insurance is definitely one of the biggest rip-offs in the insurance industry. With automation of the system for checking public records for recording deeds, the expense of verifying that a home's title chain is proper has become miniscule in comparison to the premium charged. This becomes even more true in the case of refinancing, where frequently the cost of title insurance is the same or just a little less than the original title insurance. Yet, there has been no change of ownership!
One only has to look at the obscene profits of the major title insurers to satisfy himself/herself that consumers are being ripped off big time by title insurers.
The rip-off becomes even more significant in those states that follow the custom that the seller pays for title insurance as required by the buyer's lender. In those cases, the buyer really doesn't care about costs, and sellers seldom get involved in the selection of the title insurer since they aren't purchasing the title insurance for themselves. It's in these transactions where kickbacks and payoffs are heavily utilized, as it is generally the escrow company or the seller's realtor that makes the decision on which title insurer to use. The market mechanisms that might otherwise be in place to control the costs of title insurance by price competition don't exist.
Comment By Consumer advocate Friday, April 18, 2008 @ 10:16 PM
Title insurance is definitely one of the biggest rip-offs in the insurance industry. With automation of the system for checking public records for recording deeds, the expense of verifying that a home's title chain is proper has become miniscule in comparison to the premium charged. This becomes even more true in the case of refinancing, where frequently the cost of title insurance is the same or just a little less than the original title insurance. Yet, there has been no change of ownership!
One only has to look at the obscene profits of the major title insurers to satisfy himself/herself that consumers are being ripped off big time by title insurers.
The rip-off becomes even more significant in those states that follow the custom that the seller pays for title insurance as required by the buyer's lender. In those cases, the buyer really doesn't care about costs, and sellers seldom get involved in the selection of the title insurer since they aren't purchasing the title insurance for themselves. It's in these transactions where kickbacks and payoffs are heavily utilized, as it is generally the escrow company or the seller's realtor that makes the decision on which title insurer to use. The market mechanisms that might otherwise be in place to control the costs of title insurance by price competition don't exist.
Comment By Consumer advocate Friday, April 18, 2008 @ 10:16 PM
Title insurance is definitely one of the biggest rip-offs in the insurance industry. With automation of the system for checking public records for recording deeds, the expense of verifying that a home's title chain is proper has become miniscule in comparison to the premium charged. This becomes even more true in the case of refinancing, where frequently the cost of title insurance is the same or just a little less than the original title insurance. Yet, there has been no change of ownership!
One only has to look at the obscene profits of the major title insurers to satisfy himself/herself that consumers are being ripped off big time by title insurers.
The rip-off becomes even more significant in those states that follow the custom that the seller pays for title insurance as required by the buyer's lender. In those cases, the buyer really doesn't care about costs, and sellers seldom get involved in the selection of the title insurer since they aren't purchasing the title insurance for themselves. It's in these transactions where kickbacks and payoffs are heavily utilized, as it is generally the escrow company or the seller's realtor that makes the decision on which title insurer to use. The market mechanisms that might otherwise be in place to control the costs of title insurance by price competition don't exist.
Comment By Consumer advocate Friday, April 18, 2008 @ 10:16 PM
To comply with the guidelines, this comment is full of sarcasm without personally attacking or baiting other comments. Some consumers luckily have never had to make a claim on their own policy, or known anyone who has. If they had, they would know that the benefits of having Title Insurance far outweigh the ONE TIME cost of the premium. What other insurance industry will provide you coverage of $100,000.00 or MORE for a one time fee of $600.00?
Let’s take a look at how much money the Title Insurer is really making. We can’t forget about operating costs now, can we? There are monthly fees to pay to the county for copies of their data, salaries for people to key in the data into some kind of search system, salaries for the people to examine the documents they find USING the system, salaries for the people who type the reports, etc. etc. I would venture a guess that after all the salaries and other expenses are paid, the actual profit PER TRANSACTION is VERY low. Especially since half of the expenses must be paid out even if there are no transactions generating revenue!
Refinances usually qualify for a reduced rate, oftentimes 50% less than the original premium amount! There are time limits in place that extinguish this reduced rate, the more time that passes, the more documents that have to be purchase, keyed, examined etc.
If I was buying a house, I definitely would want the seller to PROVE to me there was nothing wrong with the property, so guess what, the seller IS going to be paying for the Title Insurance.
Consumers should always contact the Insurance Police in their jurisdiction, and become familiar with the rules they impose upon entities providing insurance products and services, and what they may charge. If they did, they would better understand the FILED RATES, and know who charges what for which services!
Comment By Contradictorily yours, Monday, April 21, 2008 @ 4:35 PM
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