Title Insurance

[Elisha]

Anyone know anything about Title Insurance? No particular reason - just curious. I know what is basically is, I'm more curious about the industry. A fellow parishioner at church is an underwriter. Acording to him, it isn't well regulated, companies are very profitable - low loss ratios, and there isn't much competition. Can anyone confirm/deny this? Is there work for actuaries

[jets fan]

Anyone know anything about Title Insurance? No particular reason - just curious. I know what is basically is, I'm more curious about the industry. A fellow parishioner at church is an underwriter. Acording to him, it isn't well regulated, companies are very profitable - low loss ratios, and there isn't much competition. Can anyone confirm/deny this? Is there work for actuaries

Anyone taking out a mortgage to buy a house will probably have to buy Title Insurance to cover the bank for errors in a Title search (the bank will typically insist on it). You can also, at your option, buy Title Insurance to cover yourself (the bank doesn't care if you do this or not). So since there are a lot of people taking out mortgages (especially with the low interest rates these days), and since the bank requires it, there would probably be a decent market for it. I haven't worked in Title Insurance, but I think that it is not heavily regulated. I also think there is less competition in this line than more traditional lines - I didn't really price shop when I had to buy it for my house. I haven't seen any information on loss ratios.

[eponine]

When I worked at an insurance department, I had to review one title filing. The loss ratio was low but the expense ratio is very high. Most of the premium covers their research on the title.

[Don Quijote]

extremely low frequency, vast majority of claims are managed through a service arrangement rather than a refund of the price of the house, and finally the subrogation is important - although moderately long tail, a lot of the claims can be recovered against someone´s liability insurance (the lawyer, the builder, the neighbor, etc.) However, as eponine said, the expense component is high. Since the US doesn´t have a Napoleonic land registry system, the title investigation takes time and money, and most of the premium goes to this.

www.thetitlereport.com is an industry publication that might give you some stuff to think about if you are just curious.

[Kitten]

I used to work on the Canadian branches for two big US title companies. Low loss ratios (in and around 10% on US business), but high expense ratios as already pointed out. I believe that both companies employed actuaries. Keep in mind that is a highly specialized segment of P&C, and wouldn't necessarily improve future employment prospects...

[Elisha]

So what was the expense ratio? 50? Higher?

[Kitten]

I'm thinking it was 70%+, but I was focused more on the loss side, calculating the reserves...

[Elisha]

I'm thinking it was 70%+, but I was focused more on the loss side, calculating the reserves...

That sounds funny. Yeah, what loss to worry about? The low frequency and loss almost makes title insurance sound like some scheme that you're better off w/o buying.

[Kitten]

Although it's not that common in Canada, I shelled out about C$300 I think, a one time premium for piece of mind. Title business tends to be long tailed with claims often discovered when you go to sell your house.

[Maine-iac]

Claims are very rare, but those that exist can be of nightmare quality, so I shelled out a couple hundred for peace of mind as well. A local case that I was aware of where title insurance paid off involved a couple who bought a house, and the former owners were a couple going through a divorce. Turned out about a year after they had moved in that the ex-wife had no idea the ex-husband had sold the place, since he had forged her name on all the documents. (She no longer lived in the area.) She wanted the house back. The title company negotiated with her for a cash settlement in lieu of taking back the house, and paid the settlement. Could have probably been handled through attorneys if they didn't have the title insurance, but the title insurance was a lot cheaper.

[Kitten]

good point Chick. :)

the one claim that gives me chills was the family that purchased a home, not realizing the previous owner "Mr. Fixit" had not checked building code. When a building inspector checked some of Mr. Fixit's work at a house across the street and saw how bad it was, the building inspector then went directly to inspect this family's home and the work required was in the hundreds of thousands to bring it to code.

Now I live in a new home which is covered by home warranty the first 7 years, but beyond that... and yes, there could be an issue of some type of construction loan which didn't get cleared or... but that's what title insurance is for. :)

[Troy McClure]

That sounds funny. Yeah, what loss to worry about? The low frequency and loss almost makes title insurance sound like some scheme that you're better off w/o buying.

Also, I think it's somewhat a service - they have low losses because they check it out and actually take care of clearing up some issues. That is, if they find out there's a problem (for example, if they had caught the fraud mentioned above in time), they will get the problem fixed - no losses, but they have provided a valuable service.

[jets fan]

That sounds funny. Yeah, what loss to worry about? The low frequency and loss almost makes title insurance sound like some scheme that you're better off w/o buying.

Like it or not, whenever someone buys a house which they will have a mortgage on, they won't have a say in the matter - the bank won't go through with it unless they buy Title Insurance to cover the bank. This could be considered a forced purchase/rip-off, but it's reality.

When we went through it, we did not buy Title Insurance to cover ourselves, though. This was mainly due to us not having any more money at all other than the down payment and closing costs - we barely made that as it was. Like Kitten and Maine-iac, we thought it would be a good idea for peace of mind and we still may buy a policy, just to be on the safe side.

[Toll Free]

The pricing for title insurance is also somewhat perverse - the closing/title company is basically acting as the agent on the policy, and collecting the commission on the policy. Because most people don't shop around for title insurance, the closing company actually has incentive to sell the HIGHER priced policies, because their commissions will be higher.

This is totally anecdotal, but I seem to remember reading somewhere that forcing home buyers to purchase title insurance directly from insurance companies would have something like a 30% impact on rates (downward). A little research on internet home sites should back me up.

[Ozric Tentacles]

The pricing for title insurance is also somewhat perverse - the closing/title company is basically acting as the agent on the policy, and collecting the commission on the policy. Because most people don't shop around for title insurance, the closing company actually has incentive to sell the HIGHER priced policies, because their commissions will be higher.

This is totally anecdotal, but I seem to remember reading somewhere that forcing home buyers to purchase title insurance directly from insurance companies would have something like a 30% impact on rates (downward). A little research on internet home sites should back me up.Gah! Others here only had to pay a few hundred?!? In Texas the dept. of insurance sets the price for EVERYONE, and it's NOT pretty. I don't know if it's a fixed price no matter the value of the house or if it's a rate/$1000, but when I refinanced, I had to pay ~$1,200!!! The only reason I know this is because there is a clause in the mortgage contract that told us not to bother shopping around for a different title company because the TDI sets the prices for everyone.

But you guys already knew insurance is high in Texas.

[Maine-iac]

It's a few extra hundred for the optional policy to cover your risk.

More for the required policy to cover the mortgage holder's risk. I don't remember exactly how much, but $1200 still seems steep.

[neofan]

In Texas, the insurance purchase policies and practices are just downright cutthroat, even for auto insurance which policy holders sometimes don't have choice of which companies to purchase insurances, your current company sometimes mandates your rates your even your next company shall you decide to switch, it seems like they collaborate with state gov (did I mention auto insurance in TX is the 3rd highest in US?), it's one of the reasons that my parents moved out of TX because they're so sick of the people and mentality there.