Five-Hour Title Insurance Rate Hearing Examines Florida Regulations

On Thursday, August 23, 2007, this office attended a meeting on title insurance rates in Tallahassee, Florida.  A copy of the meeting notice can be viewed by clicking here.

Steve Parton, General Counsel for the Florida Office of Insurance Regulation (“OIR”), led a panel discussion with representatives of the title insurance industry and OIR staff.  The purpose of the meeting was to determine whether Florida is regulating title insuance rates properly. 

Some issues discussed included who should pay for title insurance agent services, whether individuals are charged twice (in premiums and title company fees) for those services, should Florida set a flat fee or use a fee-based system for services rendered, and the methods that title insurance companies use for advertising. 

Mr. Parton indicated that a market-based system may better serve consumers.  He also challenged the industry panelists with questions that required the industry representatives to justify their current business practices.

Another topic that received attention was House Bill 111, which passed during the 2007 Regular Session.  Prior to HB 111, title insurance companies were required by law to charge actual costs for the search and examination of titles.  Today, the closing costs have been deregulated.  To view a copy of HB 111, click here.

The August 23 Hearing generated media coverage, including the August 24 article re-printed below from FloridaToday.com.

 

Regulators grill title insurers

Florida rates are highest in the nation

BY PAIGE ST. JOHN
FLORIDA TODAY

A handful of industry giants monopolizes Florida’s title insurance business, and consumers are the ones who pay, a consumer advocate and independent agent told state regulators Thursday.

“If you control the product, you control the price,” said Ron Donaldson, who owns 19 independent title agencies in Florida. He estimated 80 percent of the title agencies operating in the state have signed business contracts with a single title insurer.

State reports show just six insurers write more than 98 percent of the title insurance policies written in Florida. The insurance protects buyers of real property and lenders from financial loss if there is a problem with the title. And three recent state studies show Florida has the highest title insurance rates in the nation, almost double the cost of other states, though only 5 cents of every $1 in premium paid goes to pay claims.

Consumers also are put at a disadvantage by the common practice among title insurers and agencies to cut business deals with builders, lenders and real estate agents, another witness testified.

“The incentive is to get referral fees that drive up the cost,” said actuary Steve Alexander in the Insurance Consumer Advocate’s office. He cited the findings of Colorado regulators, who found 50 percent of what homebuyers paid in title fees at the time of buying a house was kicked back to the builders and real estate agents who steered work their way.

Top officials from Florida’s nine largest title insurers — many of them owned by the same corporate parent — defended industry practices as well as rates they admitted are among the highest, if not the highest, in the nation.

They were required to attend Thursday’s hearing under subpoenas issued by the Office of Insurance Regulation, which is examining whether to ask lawmakers to change the way title insurance is regulated in Florida. The executives were not placed under oath to testify.

The practice of signing contracts with affiliated businesses, said John Dwyer, vice president of The First American Corp., “depends, like any tool, on whose hands it is in.

“It would be naive to think there are professionals who don’t direct business for referrals, but it would also be naive to think they all do,” Dwyer said. “You probably see the worst of what happens,” he told regulators at Thursday’s hearing.

He contended that homebuyers typically lack the knowledge needed to find their own title insurer, and rely on other professionals like real estate agents to secure that service for them.

For their part, insurer executives complained the recent real estate market crash is hurting their own operations, triggering large layoffs.

Regulators in Florida, Colorado and California have extracted settlement payments from the industry for allegedly using internal contracts, such as “reinsurance” treaties, to put money back into the pockets of those who secure them business.

Abuses also are occurring by title agents, who are regulated separately by the Department of Financial Services.

From 2004 through 2006, the agency disciplined more than 200 agents for illegal business practices, including 62 cases of illegal affiliated business agreements. It currently is investigating another 454 cases, said Nancy Rowell, director of Agent and Agency Services for the state.

At the end of Thursday’s five-hour hearing, regulators said they still had not asked all of their questions and told executives to be prepared for another round of subpoenas.

 

 

 

The above information is a brief summary of the activities that took place during the meeting.  It is not intended to be a comprehensive analysis of the items and issues discussed.  Should you have any questions or would like additional information, please do not hesitate to contact this office.