WASHINGTON--A consumer advocate told a congressional panel yesterday that lawmakers "must act to remove or sharply reduce" the financial incentives for title insurance companies, title agents and other intermediaries to inflate the cost of title insurance.

In testimony before a subcommittee of the House Financial Service Committee, J. Robert Hunter, a former Texas insurance commissioner who is director of insurance for the Consumer Federation of America, said the title insurance industry does this by engaging in "reverse competition through kickbacks."

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

Specifically, Mr. Hunter said, data supplied by the industry shows that title insurers pays out about 5 percent of premium dollars for claims, compared with about 80 percent for auto and home insurers.

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

Representatives of the National Association of Insurance Commissioners as well as the U.S. Department of Housing and Urban Development, which regulates real estate transactions, both supported Mr. Hunter's contention that problems exist in the industry.

And Douglas R. Miller, president and CEO of Title One Inc., a Minneapolis title company, said that in his state "the playing field is not level as the title insurance industry and the real estate industry have locked-up almost the entire marketplace through controlled business schemes."

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

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

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

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

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

NAR, he said, has also not observed limit pricing/rates involving the setting of a price low enough to discourage entry.

Mr. Stevens reported no finding of or price/rate discrimination involving charging one group of consumers a rate higher than another based on cultural or social factors in the title insurance marketplace.

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

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

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

Indeed, Mr. Yeager said, "the fact that certain companies have engaged in questionable marketing practices under RESPA [the Department of Housing and Urban Development's Real Estate Settlement Procedures Act] only demonstrates how cut-throat the competition for market share is in the title insurance industry."

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

She explained to the committee how state insurance officials are trying "to uncover and address pervasive kickback schemes within the title insurance industry."

Ms. Toll said, "State insurance officials are working aggressively to uncover and prevent improper business practices by title insurers and agents.

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

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