Why is title insurance so expensive?

We routinely knock the real estate industry for having a commission structure that is not commensurate with the level of work performed, but what about the title insurance industry? From the Morris Daily Record:

Forbes article rips title insurers
By Warren Boroson

Title insurance protects the buyer in case, for example, the seller of a house turns out not to have been the one-and-only owner. Maybe his ex-wife (or her ex-husband) also owned the house. Or maybe he or she didn’t pay a contractor for work done on the house, and there’s an outstanding lien.

The average charge in this country for a title search and for insurance is $1,472 a home, Forbes reports.

Thanks to the computer, the cost of checking a home’s ownership history has sunk as low as $25.

And only $754 of each policy winds up paying claims. That leaves $1,373 for expenses and profit.

No wonder title insurance companies are prospering, Forbes reports.

The Big Three — First American, Fidelity National and LandAmerica — run a $18 billion-a-year business that has quadrupled in 10 years.

Yet title insurance “should have been all but wiped out by digital technology … ,” the magazine argues. “It is far less necessary in these days of computerized records, online searches and rare instances of title fraud or hidden liens.”

The big question is why haven’t big insurance companies, such as American International Group, entered the field and driven down title-insurance premiums?

Forbes says the answer is “antiquated state laws that thwart new competition, allow prices to soar despite declining costs and force almost every home buyer to pay for insurance that most of them will never need.”

And in most states, homeowners cannot get mortgages unless they buy title insurance

In some states, such as New Jersey, the state sets the prices that title firms may charge.

The Forbes article goes on to say title insurers “resort to bribes and gifts to real estate agents and mortgage brokers for steering business their way … .”

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6 Responses to Why is title insurance so expensive?

  1. James Bednar says:

    From PRNewswire:

    Weekly insight from MortgageDaily.com

    Senior mortgage banking executives recently delivered dour forecasts for the next year, according to coverage from MortgageDaily.com, the dominant source of online news for the mortgage industry.

    Speaking at the recent annual conference of the Mortgage Bankers Association, the chairmen and CEOs of Freddie Mac, Fannie Mae and IndyMac predicted rising delinquency and a cooling mortgage market as rates reset. “Obviously we’re going to have a period where delinquencies and foreclosures are going to exponentially grow,” one of the executives said. “It’s going to be a fairly tough correction,” another added.

  2. James Bednar says:

    This was posted on an older thread, but a good piece. Barry from Big Picture takes apart the new NAR campaign:

    http://bigpicture.typepad.com/comments/2006/11/analyzing_why_i.html

  3. skep-tic says:

    the problem is the state. few jurisdictions have electronic filings/searches

  4. UnRealtor says:

    With that dreadful ad, I wonder if the NAR has opened themselves up to false advertising charges?

    http://bigpicture.typepad.com/comments/2006/11/analyzing_why_i.html

  5. Andra says:

    On 2 of the houses we purchased in NY State, the title insurance guy was at the table at closing and at the second, our attorney, the uncle of a friend, gave him a $50 gratuity out of our money. What for??? That attorney also charged us much more than any other RE attorney would have. The man was my husband’s best friend’s uncle so you go along with it. Never hire an attorney on a friend/friend-of-a-friend basis. One of our buyers used his mother’s boss as his attorney and – supposedly – they were getting a discount. They were told they got a discount; the fee was more than they’d have paid a guy they got from the phone book and he caused all kinds of problems about setting dates and they couldn’t push him.

    Here in Jersey, we didn’t have anyone from the title company at the first closing to buy the house or the 2 subsequent closings to refinance for a lower interest rate.

  6. Lindsey says:

    Where did the $1,300 figure come from? The numbers say $637. Still nice obviously, but not nearly as nice.

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