by Peter G. Miller
October 16, 2007
Let us now praise the great state of California for setting an example which should elate consumers: If you want to buy title insurance in California you can now compare prices online. Instantly. Anonymously. Just go to www.clta.titlewizard.com, a site that has been set up by the California Land Title Association.
If my mail is any measure of what's to come, this new site will not thrill the title insurance industry. The CLTA site provides price comparisons, a necessary and important bit of information for consumers.
This is a radically different situation than that which is found in other jurisdictions, states where minimum title insurance prices are mandated by state rules and realistic price competition is essentially a myth. That's right, in such jurisdictions you pay at least what the state says and guess who benefits?
Since title insurance prices in jurisdictions which have a non-compete clause are similar, it doesn't much matter which title company gets the business. The result is that lots of premium dollars go to entice closing agents to sell a policy but not to actual claims. Consumers, in effect, are paying high prices to have policies sold to them.
"Title insurance differs from other types of insurance in key ways," says the General Accountability Office. "First, in most property and casualty lines, losses incurred by the underwriter account for most of the premium. For example, property-casualty insurers' losses and loss adjustment expenses accounted for approximately 73 percent of written premiums in 2005. In contrast, losses and loss adjustment expenses incurred by title insurers as a whole were approximately 5 percent of the total premiums written, while the amount paid to or retained by agents (primarily for work related to title searches and examinations and for commissions) was approximately 70 percent."
In California, however, not only do prices vary but folks in Florida, New Jersey and other states might want to compare costs with some of their West Coast cousins. You can do that now by going to the Title Wizard site.
For instance, I priced a policy for a $750,000 loan in Los Angeles ZIP code 90102. The site first asked if the transaction was a sale, purchase or refinance. This can be important because in some cases borrowers may qualify for a "re-issue" rate if the property was recently financed or sold.
Next, the site asked for the sale value of the property (I said $1,000,000) and the loan amount ($750,000). The site then asked if the property is residential or commercial and whether it's a single-family home, duplex, etc. A few nano-seconds later I had a lengthy list of policy prices and a wide range of providers. The pricing for owners and lenders coverage ranged from $746.60 to $899 -- that's a difference of more than $150 (20 percent).
Out of sheer curiosity, I also tried the system for ZIP code 95204, Stockton, CA, an area with high levels of foreclosures. I got fewer provider choices, but again a big price differential ranging from $748 to $872.50.
It's important to say that price is not the only issue with title insurance policies. You want to ask about coverage limits and what the policy includes and does not include. That said, it surely helps to know the price of the product and that prices from various sources differ.
"CLTA has answered the call to develop a high-tech solution in a first step to infuse competition into the title insurance industry," says California Insurance Commissioner Steve Poizner. "Too often, consumers have to rely on a middle man to select their title insurance. Now, consumers will be empowered to compare prices and services online with the touch of a button."
Unfortunately, there's more empowering to do:
"Insurance regulators in at least four states have concluded that consumers are being overcharged for title insurance," the GAO said in April, "and the California insurance regulator has recommended rate rollbacks -- an action that some in the title industry have strongly criticized. Because virtually everyone who buys a home or refinances a home mortgage in the United States typically must purchase title insurance, the potential effects of such practices are enormous."
The California site is a major rebuke to those who want to hide title insurance prices. The next issue, the key issue, is to ask why minimum rates are set by any state and why title agents cannot offer discounts and rebates to spur marketplace competition. In New Jersey, as one example, a bill that would allow full and free competition, S. 2229, has been introduced by state senator Raymond Lesniak (D-Union). Open competition, of course, should be welcome everywhere -- as should Mr. Lesniak's bill.
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