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A Message From the Underwriter Chair

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May/June 2000 - Volume 79, Number 3

E-commerce is the New Economy Business Model

We live in rapidly changing, or should I say radically changing, times. I bet that’s a statement that you’ve never heard before. In my view, what has changed in recent years is not the fact of constant change in the real estate industry, but the accelerating pace of change. Anyone working in the title business who ignores this fact is doomed for failure or extinction. Pick your poison.

New Economy

Excerpts from a recent Executive Summary I reviewed stated the following: "E-commerce is the ‘New Economy’ business model. Use of the Internet in conducting global business is not a technology issue; it is a strategic imperative. The driving force for E-commerce is coming from business itself, not from Internet providers. It is a logical transition to a digital economy from a paper economy. The challenge for business leaders is not whether to make this transition, but how to move out of legacy systems into E-commerce with confidence. Companies no longer have the luxury of taking time to develop and invest in new technology; they must find a way to have the capacity to conduct business in this new model in the shortest possible time with the least amount of investment and re-education of their organization members.

These statements are profoundly applicable to the title insurance industry and are echoed in the articles by Freddie Mac and Fannie Mae in this edition of Title News. The Gartner Group is predicting worldwide business-to-business E-commerce will grow from $145 billion in 1999 to $7.29 trillion within five years. Thus, it is imperative that we properly position ourselves within this new E-commerce business model.

Predicting the Future

Interested in a prediction? Try this one. Within five years, 15 percent of all first mortgage title insurance policies will be purchased over the Internet. Additionally, a large percentage of these policies will be sold directly by non-traditional sources. What is the basis for this prediction? Simple logic. Logic dictates as an increasing number of mortgages are procured on-line, then the Internet-savvy (and ever-younger) customers securing these mortgages will demand they be able to purchase all the products, i.e., title insurance, they need to complete a home purchase over the Internet.

The Challenge to Our Industry

The prospect of selling title insurance directly to consumers on-line poses two great challenges in our business: 1) continuing capital investment in technology; and 2) renewed efforts to guard against fraud. Whether you are an underwriter or an agent, this trend will significantly affect you and your business. In the case of underwriters, an appropriate portion of capital must be re-directed from buildings and title professionals to technology and technologists who understand the title business and it’s myriad of paper-intensive legacy processes. How much capital is enough? Each underwriter will struggle with this decision. Some will make the right call and others will falter. In many ways, agents face a more challenging road as the timing, not the necessity, of change will be sharply influenced by their relative demographics. Locally oriented or rural agents may move more slowly to E-commerce than larger urban or regional agents. However, competitive forces will ultimately require all agents to heavily invest in E-commerce technology as the Internet erodes the geographic boundaries and obstacles of doing title business any time or any place in the country and perhaps the world.

The specialized, unique and relationship-oriented characteristics of our business, products and services are adopting the features of a "commodity." Title vendor selection will be based on efficiency and cost of distribution, i.e., faster, cheaper, better. Customer relationships and customer service will not be eliminated or diminished but their meaning and application will be redefined. "Technology and the technology of the future will continue to need small and crucial parts of our heritage" (Edward Tenner, "We the Innovators," U.S. News and World Report, January 3-10, 2000 issue).

Regardless of how quickly we move toward E-commerce, everyone involved in our industry will need to develop technology solutions that do not open the door to fraud. A certain amount of trial by fire may be inevitable in this area, but we must as an industry transfer our vigilance against fraud on the paper side of our world to our new on-line ventures.

We Must Band Together

I don’t have the answers, of course. Nobody does. The accuracy of any of our predictions will be proven by time and rapidly changing times call for pooled thinking. "Life must be lived forward but understood backward. The way to verify our sense of what will be is to live long enough to experience it." (Edward Tenney, ibid.). To continue to prosper as an industry, we must band ever more tightly under the ALTA® umbrella to continually exchange ideas and share broad-based strategies for dealing with these challenges and great opportunities. Our success will be based on our ability to anticipate where our industry is going, not where it has been. Successful anticipation is a function of our current level of knowledge and experience. Don’t get lost.


Frank P. Willey

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