WASHINGTON--A consumer advocate told a congressional panelyesterday that lawmakers "must act to remove or sharply reduce" thefinancial incentives for title insurance companies, title agentsand other intermediaries to inflate the cost of titleinsurance.

In testimony before a subcommittee of the House FinancialService Committee, J. Robert Hunter, a former Texas insurancecommissioner who is director of insurance for the ConsumerFederation of America, said the title insurance industry does thisby engaging in "reverse competition through kickbacks."

"Just making these payouts illegal did not work," Mr. Huntersaid. "The incentive must be eliminated completely."

Specifically, Mr. Hunter said, data supplied by the industryshows that title insurers pays out about 5 percent of premiumdollars for claims, compared with about 80 percent for auto andhome insurers.

He said that between 1995 and 2004, title insurance loss ratiosaveraged 4.6 and the loss ratio was below five points for eight outof 10 years. For example, Mr. Hunter said, First American Titlereceived $3.4 billion in premiums in 2003 but paid only $41.7million in claims--a 1.2 loss ratio.

Representatives of the National Association of InsuranceCommissioners as well as the U.S. Department of Housing and UrbanDevelopment, which regulates real estate transactions, bothsupported Mr. Hunter's contention that problems exist in theindustry.

And Douglas R. Miller, president and CEO of Title One Inc., aMinneapolis title company, said that in his state "the playingfield is not level as the title insurance industry and the realestate industry have locked-up almost the entire marketplacethrough controlled business schemes."

"The culprit goes by many names: affiliated businessarrangements, controlled business arrangements, one stop shopping,ancillary services and bundled services are a few," Mr. Millersaid. But, he added, "the terms all mean the same thing--steeringreal estate consumers into overpriced ancillary services for secretprofits."

"Controlled business is now estimated to be involved in over 90percent of all residential real estate transactions in my area,"said Mr. Miller.

Representatives of the realtor and title insurance industrydefended their practices, although a representative of the titleinsurance industry did support claims of illegal acts.

Thomas M. Stevens, president of the National Association ofRealtors, said that realtors have not found illegal practicesamongst title insurance providers.

Mr. Stevens said his group has not seen predatory pricing andrates being cut or put below cost in order to drive out companiesfrom the market.

NAR, he said, has also not observed limit pricing/ratesinvolving the setting of a price low enough to discourageentry.

Mr. Stevens reported no finding of or price/rate discriminationinvolving charging one group of consumers a rate higher thananother based on cultural or social factors in the title insurancemarketplace.

Such practices, he said, "are not only unlawful but could beindicative of a concentrated, anti-competitive industry."

Rande K. Yeager, president and CEO of Old Republic NationalTitle Insurance Co., speaking on behalf of the American Land TitleAssociation, testified that there is a misconception "that there isa lack of competition in the industry."

"That is simply not the case," he said. "Not only do titleinsurers actively compete for market share against other titleinsurers, but insurers compete against agents, and agents competeagainst each other."

Indeed, Mr. Yeager said, "the fact that certain companies haveengaged in questionable marketing practices under RESPA [theDepartment of Housing and Urban Development's Real EstateSettlement Procedures Act] only demonstrates how cut-throat thecompetition for market share is in the title insuranceindustry."

Testifying on behalf of the NAIC was Colorado Deputy InsuranceCommissioner Erin Toll, who has been a leader among regulators inprobing questionable activity by title insurers.

She explained to the committee how state insurance officials aretrying "to uncover and address pervasive kickback schemes withinthe title insurance industry."

Ms. Toll said, "State insurance officials are workingaggressively to uncover and prevent improper business practices bytitle insurers and agents.

"We have imposed penalties, ordered restitution and shut downsham business arrangements," she said.