Title Insurance

Essay by sandhamn October 2014

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Title Insurance, an Industry Unshaken

The typical American dream is to own a home but who guarantees that my home is "my home". This is where the business model of a $30 billion industry known as Title Insurance begins. Insuring a title to a mortgage is performed with a litany of people: underwriters, title agents, abstractors, attorneys, real estate professional and appraisers. Currently, 92% of this industry is dominated by 4 Title Insurance companies: Chicago Title Insurance, Old Republic Title Insurance, Stewart Title Insurance and First American Title Insurance (see figure 1). In other words, the Title Insurance industry is an oligarchy of 4 companies protected against competition by the following current state laws:

A Title Insurance company cannot sell any other form of insurance

Every home buyer must purchase title Insurance as per requirement by state and lender

It is illegal for anyone to offer guarantees that provide the same protection as title insurance companies

Banks cannot offer title insurance as part of a loan

Finally in an effort to control soaring rates by the major Title Insurance companies, a handful of states set prices that title insurance companies may charge while other states regulate and allow the rates that the title insurance companies request.

The Title Insurance Industry has one of the lowest loss ratio compared with other forms of insurance. This has been reflected by major companies taking in billions of dollars annually and payout roughly 5% in claims. This industry is devoid of price competition and leaving price for title policy inelastic. The consumer is required by law and lender to purchase title insurance for a home purchase or refinance. Furthermore, the Title Insurance industry has been sited with reverse competition practices. Instead of competing on price which has been maximized and regulated by the state,