September/October 2000 - Volume 79, Number 5
The following is excerpted from the ALTA®/A.M. Best Report, "Title
Insurance Report and Industry Statistics."
Like the rates for other forms of insurance, rates for title insurance are
usually regulated by the state governments to ensure that premiums are not
excessive, inadequate or unfairly discriminatory to the public. States have
different methods of regulating title insurance rates. The types of rate
regulation used are:
- Promulgation - A state regulatory body sets the rates.
- Prior Approval - Insurers propose rates which must be formally reviewed
and explicitly approved or deemed approved by the regulatory body before
they can be charged.
- File and Use - Insurers set rates, but they cannot be charged until the
regulatory body has been notified and allowed time for review and action if
necessary. In some prior approval states, almost the same result is achieved
through a so-called deemer provision. Under a deemer, rates proposed by
insurers are deemed approved if the regulatory body takes no action to
disprove a filing within a specified time and the filer notifies he state
that the rates are being deemed approved.
- Use and File - Insurers set rates which can be charged immediately, as
long as the new rate schedule is filed with the regulatory body.
- No Direct Rate Regulation - Insurers set rates which can be changed at an
insurers' discretion. Even in this apparent unregulated situation, a
regulatory body is still charged with overseeing the title insurance
industry and can question the propriety of a rate that appears to be
unfairly discriminatory or otherwise violates statutory standards.
Exhibit 1A provides a state-by-state outline of rate filing statutes.
Title insurance premium rates are largely determined by operating and
acquisition cost factors, as compared to property/casualty rates that are based
on the actuarial determination of expected losses. The risk of title loss is a
function of many factors, which may vary considerably from jurisdiction to
jurisdiction and transaction to transaction. Rates also vary considerably from
state to state.
Rate Adequacy and Stability
Title insurance premium rates are based on five considerations:
- the cost of maintaining current title information on property local to
that operation, i.e., title plant;
- the cost of searching and examin-ing title to subject properties;
- the cost to resolve or clear defects to title;
- the claims costs covering title defects; and
- the allowance for a reasonable profit.
Loss Characteristics Between Companies
Title insurance loss experience varies considerably among individual
companies based on a wide array of factors, including:
- Experience and technical competency of both a company's agents and title
- Quality and quantity of title documentation and evidence (both public and
private) underlying the search and examination process.
- Regional differences in title insurance customs and practices, underlying
title insurance risks, the mix of residential sale, residential refinance,
and commercial business, and defalcation risks.
- Adequacy and effectiveness of a company's underwriting controls and agency
- Differences in the proportion of a company's agency vs. direct book of
- Differences in the proportion of a company's commercial vs. residential
book of business.
- Differences in company claim ad- ministration processes in areas of claim
recognition, evaluation, timing of settlement and recoupment.
Title companies compete with nearly identical products, based on title policy
forms developed by either the American Land Title Association® or the
Jurisdictional (Statutory) Land Title Association. As a result, the areas for
competition have shifted to price and service.