Armed with studies showing huge jumps in profits and premiums,Florida's Office of Insurance Regulation (OIR) has launched thefirst volley in what may become a pitched battle for itsmembers.

OIR says the reports paint a picture of a greedy title insuranceindustry ripping off Florida consumers by charging excessive feesto make huge profits. “Most Florida consumers of title insuranceservices appear to be paying more for comparable title insurancethan consumers in other states,” concludes one of the studies.

Title insurers call the reports “misguided” – and that's one ofthe milder retorts.

Although it's bigger than medical malpractice and inland marineinsurance in Florida and used in almost every land transaction,title insurance has traditionally received very little attentionfrom regulators or consumers. The insurance provides coverageagainst defects in title to real property. It's meant to protect anowner's or lender's financial interest in property against loss dueto title defects, liens, or other matters of public record. Nearlyall institutional lenders require title insurance to protect theirinterest in the collateral of loans secured by real estate.

The coverage is unique in several ways. First, there are fewclaims. Second, most of the premium stays with the agent instead ofthe underwriter. Third, it is a one-time payment instead of amonthly fee that is maintained as long as the policyholder holdsthe property.

The demand for title insurance reached a fever pitch in the pastfour years amid the land rush in Florida and the rising costs,particularly in South Florida. The boom times have only recentlyslowed as real estate sales have receded and prices havemoderated.

Big Profits Getting Attention

Armed with the first new examination of the title insurancemarket in Florida since 1997, the OIR appears ready to do battle.“We are questioning if the profits are too high,” said agencyspokesman Bob Lotane. “There are several issues here that we needto look at.” (The Florida State University researchers would notcomment on their findings, referring all calls to OIR'sLotane.)

The Office of Insurance called for the new reports as part ofits state requirements to regulate title insurance. The studiesfound:

In Florida, title insurance premiums topped $15 billion in 2004.The market is dominated by five firms that sell most of theircoverage through agents and agencies: Fidelity National Financial,Attorneys Title, First American Title, Land America, and StewartTitle.

Title insurance premiums may be overpriced because premiums arehigher than in surrounding southeastern states, while Floridacompanies have lower loss ratios. In fact, the study said premiumsin Florida are twice the rate in Alabama, Georgia, and theCarolinas.

From 1995 to 2004, title insurance premiums jumped 280 percentnationally and 310 percent in Florida.

Profits for the title insurance industry nationally jumped 368percent over the past decade.

The amount of money paid to title agents increased by 238percent in the past decade, to $145 billion.

Finally, the title industry's financial position improvedsignificantly over the last decade as the industry's return onequity increased from three percent in 1995 to 11 percent in2004.

The state report concluded that Florida's title insurancepremiums range from 40 percent to 115 percent higher than otherstates, depending on the level of coverage and whether thepolicyholder had prior coverage.

Consider the Source

In response, Florida title insurance officials say the reportsare so misguided they question the political motivation behindthem. “We do have a critique of these reports and they are justhorrible,” said Lee Huszagh, executive secretary/treasurer of theFlorida Land Title Association, which represents 150 insurers,agencies, attorneys, and vendors who serve the title insuranceindustry.

Huszagh and other title insurance officials wonder out loudwhether the report in any way is related to Florida Chief FinancialOfficer Tom Gallagher's run for the governor's mansion. “Gallagheris just trying to show how he's consumer friendly,” Huszaghsaid.

The title insurance industry also was critical of how thereports were designed.

Huszagh said it's wrong to compare the title insurance marketwith the property insurance market that has many more claims andwhere agents keep only a sliver of the premium.

Further, proponents say it was unfair to compare costs inFlorida to surrounding states because land is more expensive inFlorida compared to Alabama, Mississippi, and other states.Instead, Florida should be compared with other large states such asNew York or California, they contend.

Some states such as Florida lump the cost of title insurance inwith other property closing costs such as search, settlement fees,and document preparation. Other states still keep all thetransactions separate.

“The bottom line is, closing costs in Florida are no higher thanother big states,” said Huszagh. While other states, particularlyin the South, have lower title insurance costs, they also requirean attorney to be present at closing which raises total closingcosts, he noted. In Florida, a title agent can serve in therole.

Competition Is Healthy, Keeps Prices In Line

As with property insurance, title insurance costs are based onthe land being bought. As a result, rising land prices have meanthigher title premiums, something the title insurance field doesn'tbelieve it should be blamed for.

While the state reports questioned the effect on the market ofonly having a few companies control the market, Huszagh said thethousands of agents in the title field ensure there is plenty ofcompetition to control prices.

Because the title agent does most of the work such asresearching the deed and determining if there are any liens, thetitle agent keeps about 70 percent of the title premium.

Huszagh estimated there are thousands of agents who write titleinsurance in Florida, many who entered the field during the housingboom of the past four years.

Though the state reports insinuated that the title market's lossratio was too low, title insurers said they shouldn't be faultedfor keeping claims down. “Our main aim is to avoid claims,” saidBarry Scholnik, vice president of Stewart Title Guaranty Company'sBoca Raton office and chair of the insurer's section for theFlorida Land Title Association. “To focus on claims misses thepoint,” he declared. “Title agents avoid claims because onesuccessful claim can eliminate nearly a year's worth ofpremiums.”

Scholnik said consumers need to know that title insurance isstill properly priced in Florida. Overall, title insurance priceshave been stable since 1999, Huszagh said. He said OIR should knowthat because it approves all title insurance prices.

And the state's reports?

“This is a political hatchet job,” he said.

Or at the very least, fodder for the 2007 state legislature toconsider as it re-examines how and why insurance costs have becomeenemy #1 for Florida consumers. And something for the new governorand CFO to battle – whoever they may be.