OfflineTitle insurance has been criticized many times in the past for what many believe are high premiums with low claims rates. One estimate is that while auto and home insurance companies experience claims at more than 30% of premiums, recent estimates show that title insurance companies only pay out around 4.5% to 5% of the premiums collected as claims. That was around $443 million on more than $15 billion in premiums last year.
In New York for example, a $500,000 home purchased with a $400,000 mortgage would result in a title insurance premium of approximately $2,666. A quote from a managing partner of Expert Title Insurance Agency in Manhattan is “It’s a bargain in the end given the protection title insurance provides.” Many would be a bit skeptical of this statement with the low claims paid out and the high premiums charged over and over every time a home is sold.
One of the main reasons cited for these high premiums is the system of using local title company agencies to do the title searches and sell the policies. These agencies are getting in many cases as much as 80% of the premium. With buyers usually relying on the real estate agent or lender to recommend a title company, many believe that this constrains competition, resulting in much higher premiums.
While kickbacks aren’t allowed from title companies to real estate agents, it’s common for title companies to court agent business and many agents devoutly recommend only a single title company. This is aggravated in many states because premiums are regulated, and the buyer can’t shop for any significant savings. In some states title insurance is handled by a real estate attorney, and there has been resistance to change the way things are done when that large commission is at stake.
The New York state Department of Financial Services has recently sent subpoenas to a number of title companies. While a department spokesman wouldn’t comment, the plan seems to be to investigate the relationships between title companies, underwriters, real estate agents and lenders and how buyers and sellers are steered to title companies.
Your thread brought up an interesting point that I have never really thought about - the price of the policy in comparison with the number of claims. When you look at it in this light, it does seem that the policy is overpriced in many respects.
On the other hand, my parents personally felt the hardship that comes when title insurance is not required or even recommended in some states. They have recently spent thousands of dollars, almost 1 years of waiting and lost a good buyer because of a break in the chain of title. Title insurance would have covered all of this.