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

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

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

Although it's bigger than medical malpractice and inland marine insurance in Florida and used in almost every land transaction, title insurance has traditionally received very little attention from regulators or consumers. The insurance provides coverage against defects in title to real property. It's meant to protect an owner's or lender's financial interest in property against loss due to title defects, liens, or other matters of public record. Nearly all institutional lenders require title insurance to protect their interest in the collateral of loans secured by real estate.

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

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

Big Profits Getting Attention

Armed with the first new examination of the title insurance market in Florida since 1997, the OIR appears ready to do battle. “We are questioning if the profits are too high,” said agency spokesman Bob Lotane. “There are several issues here that we need to look at.” (The Florida State University researchers would not comment on their findings, referring all calls to OIR's Lotane.)

The Office of Insurance called for the new reports as part of its state requirements to regulate title insurance. The studies found:

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

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

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

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

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

Finally, the title industry's financial position improved significantly over the last decade as the industry's return on equity increased from three percent in 1995 to 11 percent in 2004.

The state report concluded that Florida's title insurance premiums range from 40 percent to 115 percent higher than other states, depending on the level of coverage and whether the policyholder had prior coverage.

Consider the Source

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

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

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

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

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

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

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

Competition Is Healthy, Keeps Prices In Line

As with property insurance, title insurance costs are based on the land being bought. As a result, rising land prices have meant higher title premiums, something the title insurance field doesn't believe it should be blamed for.

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

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

Huszagh estimated there are thousands of agents who write title insurance in Florida, many who entered the field during the housing boom of the past four years.

Though the state reports insinuated that the title market's loss ratio was too low, title insurers said they shouldn't be faulted for keeping claims down. “Our main aim is to avoid claims,” said Barry Scholnik, vice president of Stewart Title Guaranty Company's Boca Raton office and chair of the insurer's section for the Florida Land Title Association. “To focus on claims misses the point,” he declared. “Title agents avoid claims because one successful claim can eliminate nearly a year's worth of premiums.”

Scholnik said consumers need to know that title insurance is still properly priced in Florida. Overall, title insurance prices have been stable since 1999, Huszagh said. He said OIR should know that 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 to consider as it re-examines how and why insurance costs have become enemy #1 for Florida consumers. And something for the new governor and CFO to battle – whoever they may be.

Special Reports /

Title Insurance OIR Pokes a Sleeping Giant

Related Stories

Recommended For You