Criticism came fast and furious from a consumer advocate,insurance regulator and title insurance company executive, amongothers, all complaining about anti-competitive practices at arecent congressional hearing.

Congress “must act to remove or sharply reduce” the financialincentives for title insurance companies, title agents and otherintermediaries to inflate the cost of title insurance, said RobertHunter, director of insurance for the Washington-based ConsumerFederation of America.

Colorado Deputy Insurance Commissioner Erin Toll and Douglas R.Miller, president and chief executive officer of Title One Inc., aMinneapolis, Minn.-based title insurer, gave similar testimonybefore the Housing Subcommittee of the House Financial ServicesCommittee on April 27. The hearing came just days after theGovernment Accountability Office issued a scathing report on thetitle insurance industry, detailing a lack of competitiveness,regulation and questionable costs. (See related story on thispage.)

Announcing the hearing, Rep. Robert Ney, R-Ohio, subcommitteechairman, said that “in today's dynamic real estate market, titleinsurance plays an important role in the home-buying process.” Heexplained that the hearing–which also took testimony from realestate interests and other title insurance industryrepresentatives–was intended to focus on the “need to create morecompetition and efficiency for consumers.”

Mr. Hunter testified that the title insurance industry engagesin “reverse competition through kickbacks. Just making thesepayouts illegal did not work. The incentive must be eliminatedcompletely.”

Specifically, Mr. Hunter said, data supplied by the industryshows that title insurers pay about 5 percent of premium dollars onclaims, compared with about 80 percent for auto and homeinsurers.

He said that between 1995 and 2004, title insurance loss ratiosaveraged 4.6 percent, and the loss ratio was below 5 percent ineight out of 10 years. For example, he noted, First American Titlereceived $3.4 billion in premiums in 2003 but paid only $41.7million in claims–a 1.2 percent loss ratio.

Ms. Toll, representing the National Association of InsuranceCommissioners, along with officials of the U.S. Department ofHousing and Urban Development, which regulates real estatetransactions, backed Mr. Hunter's contention that problems exist inthe industry.

Title One's Mr. Miller said that in his state of Minnesota, “theplaying field is not level,” explaining that “the title insuranceindustry and the real estate industry have locked up almost theentire marketplace through controlled-business schemes.”

“The culprit goes by many names–'affiliated businessarrangements,' 'controlled business arrangements,' 'one- stopshopping,' 'ancillary services' and 'bundled services' are a few,”he said. “The terms all mean the same thing–steering real estateconsumers 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,” headded.

Representatives of the realtor industry and others representingthe title insurance industry defended their practices.

Thomas M. Stevens, president of the National Association ofRealtors, said realtors have not found illegal practices amongtitle insurance providers. He said his group has not seen predatorypricing that would involve rates being cut or put below cost inorder to drive out companies from the market. Nor has NAR observedlimit pricing/rates, which he defined as setting a price low enoughto discourage entry.

He also reported no finding of price discrimination that wouldinvolve charging one group of consumers a rate higher than anotherbased on cultural or social factors.

Any such practice in the title insurance market would not onlybe unlawful, but would also be “indicative of a concentrated,anti-competitive industry,” Mr. Stevens said.

Rande K. Yeager, president and CEO of Old Republic NationalTitle Insurance Company, speaking on behalf of the American LandTitle Association, testified there is a misconception “that thereis a lack of competition in the industry. That is simply not thecase. Not only do title insurers actively compete for market shareagainst other title insurers, but insurers compete against agents,and agents compete against each other.”

Indeed, Mr. Yeager said, “the fact that certain companies haveengaged in questionable marketing practices under RESPA [HUD's RealEstate Settlement Procedures Act] only demonstrates how cut-throatthe competition for market share is in the title insuranceindustry.”

Ms. Toll, who has been a leader among regulators in probingquestionable activity by title insurers, said Coloradoinvestigators found that three of the top four companies offeringtitle insurance in the state were involved in questionable referralpractices.

She told the committee that state insurance officials are trying“to uncover and address pervasive kickback schemes within the titleinsurance industry.”

“State insurance officials are working aggressively to uncoverand prevent improper business practices by title insurers andagents,” she said. “We have imposed penalties, ordered restitutionand shut down sham business arrangements.”

Members of the congressional subcommittee all argued thatillegal kickbacks and sham business agreements need to beeliminated, although opinions varied regarding the extent of theproblem.

Rep. Gary Miller, R-Calif., noted that pricing in the titleinsurance business is generally based on the price of the propertybeing sold and does not account for potentially wide disparities inthe property being insured. “It doesn't matter how extensive thetitle search is, or how limited–the price is pretty much the same,”he said.

Prior to coming to Congress, Rep. Miller said he was himselfinvolved in the real estate business and had actually performedtitle searches. In his time in the industry, he said he had neverbeen offered any form of illegal payment, adding that, “I don'tknow a realtor who has been, and I don't know a builder who hasbeen.”

Rep. Patrick Tiberi, R-Ohio, also questioned the extent of theproblem, noting that real estate agents who steer customers to ahigher-priced title insurer for their own benefit would likely endup hurting themselves by tarnishing their reputations.

Ms. Toll pointed out, however, that any problems with aproperty's title would likely not surface until the customer wantedto re-sell the property, which could be years later.

In response to questioning from Rep. Randy Neugebauer, R-Texas,Ms. Toll said that the problems in the title insurance industry arenot limited to her state. “Sadly, it's a problem we're seeingacross the country,” she noted, adding that illegal practices aremore concentrated in areas with more robust real estate markets,such as Florida, Nevada and California.

Current law already prohibits real estate agents from takingkickbacks or other compensation for title insurance referrals, andRep. Miller questioned whether adding more penalties would beeffective. “How many hammers do you need to beat up the same guy?”he asked.

Rep. Mike Oxley, R-Ohio, who chairs the full Financial ServicesCommittee, expressed his view earlier in the hearing that simplycalling for tougher enforcement of current law would likely not beenough to resolve the problem. “I don't believe the lack of pricecompetition is something we can enforce our way out of,” hesaid.

Rep. Oxley also took a different perspective on title insurancepricing, noting that while real estate prices have gone up,bringing title insurance premiums up with them, the actual processof researching a title has been made simpler by technology.

“If a house has doubled in value, does it really take the realestate agent twice the work to sell it? Or the title servicecompany twice as much to run the automated title search?” heasked.