by Robert Miller
The relationship between independent title agencies and underwriters is changing at a dramatic pace. What is the future role for both in a morphing title industry?
Nowhere in the title industry is change more evident than in the evolving relationship between the independent title agent and the title insurer. Although the discussion of change in the industry often focuses on the rise of controlled business arrangements, bundling services, new regulations, increased enforcement, evolving technology, and the softening market, there is no doubt that the dynamic between the underwriter and the independent agent is significantly affected by all of these developments. Long considered to be the foundation of the title insurance industry, the agent-underwriter relationship looks much different than it did even 15 years ago. While some are struggling to comprehend their new role in the industry, others are embracing the metamorphosis. >>
So what will the agent-underwriter relationship look like in another 20 years? Some assert that the independent agent will be marginalized as the underwriter takes advantage of technology and direct operations in an approach of disintermediation. Others argue passionately that the local service delivered by independent agents cannot be replaced by national title plants and captive agencies, and that those agents will continue to play a significant part in how title products are delivered. While the truth may lie somewhere in between, there is no arguing that the agent-underwriter dynamic will not be returning to “normal” anytime soon.
The Agent-Underwriter Dynamic: The Way It Was
The title industry has always prided itself on quality of service and quality of relationships. Once upon a time, the independent title agent was the primary source of sales for regional or national title insurance companies, mostly because of the level of service he or she could deliver. The underwriter, for the most part, was not in touch with the customer directly—but rather, depended upon the agent for his or her relationships and particularized regional knowledge. Bound by this dependence upon the agent for knowledge of local customers or quirks in the county recording system, no underwriter could afford to work in a location without a local presence. Thus, the independent agent was, to a great extent, a primary customer of the title insurer. The agency brought its network, its affiliations, its knowledge of the region’s customs, mores, and purchase patterns, and, hopefully, its business to the underwriter. For many the relationship was simple: the underwriter wrote the paper and the agent sold it.
TThe Agent-Underwriter Dynamic—The Way It Is
Today, the underwriter is much more than a provider of title insurance to be sold by an independent agent. Several factors have combined to drive significant change in the agent-underwriter relationship. Technology and the increasing number of direct operations, in particular, have given the national underwriter greater access at the regional level, and often at a reduced cost. Fred Reimer, president of Select Title Agency, Inc. in New Jersey, notes that underwriters today are far less dependent upon local agents for their specialized knowledge. “Technology and paperless recordings increasingly allow for searches and information to be obtained within minutes or seconds, at a significantly reduced expense,” he notes. “The underwriter’s need for the independent local agent and the commissions paid to that agent are greatly reduced."
The improved access to title search resources at a national level, however, is not the only factor changing the national underwriter’s role at the local level. One source of great debate in the industry has been the rise of the direct operation or captive agency. Citing a need to control expenses (almost a form of supply-chain management), the national underwriter has opened direct offices in the locales once controlled by the independent agent. Now, instead of being forced to compete with other underwriters for the independent agent’s loyalty, the insurer can rely upon local agents utilizing the local know-how once specific to independent agents, with less threat of losing out to a competitor.
David Townsend, president and CEO of Farmers National Title Insurance Company in Columbia, MO, believes "the line has been blurred between the underwriter’s role as an underwriter and the underwriter’s role in direct title operations. We’re seeing more direct operations and title plant ownership at the national level than ever before, leading to a feeling on the part of the independent agent that he or she is competing with his or her own underwriter for business."
It goes without saying that the rise of direct operations has been a source of heated discussion at all levels of the title industry. Some independent agents have voiced displeasure, struggling with the inherent conflict of competing with, in essence, their own supplier. These agents have argued that the underwriters might be inclined to favor their own direct operations in lieu of their independent agents. Other industry experts, however, have been more positive about the shift in the dynamic. Michael Kennerley, assistant VP, sales with Charles Jones Inc. in New Jersey, sees little change in the big picture. "Anyone producing an order could be perceived as a competitor," he said. "However, having worked with all of the major underwriters, I believe they are doing a good job striking a balance between supporting their direct operations and maintaining independent agency business."
Ginger Bigelow, vice president and general manager of Beltway Title and Abstract in Maryland, acknowledges the change in the underwriter-agent dynamic and agrees that, in many instances, a direct operation amounts to competition between the partners. However, she notes that a variety of factors have enabled the underwriter to provide the local touch once reserved for independent agents. And she reluctantly agrees that the underwriters cannot be blamed for seeking to control costs. “The best service will only go so far anymore,” she notes. “Our customers now also demand speed, technology, and accuracy. As independent agents, we accept that we need to embrace the new model and work with the underwriters, rather than denying the new reality.” Bigelow also points out that underwriters can be strong resources for the independent agent, and suggests that agents can use these resources to their advantage. New technology to improve the production process, and legal and compliance advice are all welcome facets of the new agent-underwriter relationship. In addition, Bigelow asserts that underwriters can often be a source of new business for the independent agent. “Our current underwriter has introduced us to new national accounts we wouldn’t have found without them. A midsize regional title company such as Beltway wouldn’t be likely to find business outside of our region without the help of an underwriter.”
Kennerley believes that underwriters are strong educational resources as well. “It can be difficult for the busy independent agent to track all of the state and national compliance issues,” he said. “Whether offering compliance strategies or suggesting even operational approaches, the national underwriters are still providing strong services to the independent agent."
The Agent-Underwriter Dynamic—The Way It’s Going . . .
Even though the independent agent is no longer the only gateway to regional nuances and expertise, most agree that he or she is not going away. But what exactly will the agent’s role be in the future? Bigelow, despite acknowledging the likelihood of an underwriter-dominated market, firmly believes the independent agent will always have a role in the industry. "In some cases, the underwriter is almost too big," she said. "The customer wants to deal with a local person with a local touch. However, there may not be a need for as many independent agents in the future—the strongest will figure out where the industry is going and get there early."
Reimer agrees, arguing that one major impediment to the existing independent agent is actually an influx of new, inexperienced title agencies. “The result is often that an experienced agent with high quality standards is often forced to undermine those standards in order to compete, which undermines the entire industry,” he said. While there may be fewer independent agents in the future, they will still have an important role to play from a local service perspective.
But is this transition good for the industry overall? Certainly agents feeling the pinch cannot be thrilled with the prospect of a smaller slice of the overall pie. But many agents, if reluctantly, agree that the change may be good for the industry, and even the consumer. “The underwriters are moving the industry forward,” said Bigelow. “They’re pushing agents to be on top of their game, whether through bundling, new technologies, or delivery of a better product. It may not be enjoyable, but the increased competition may be improving the performance of many agents.”
Not everyone believes the future of the industry rests with the major national underwriters. Although many of the established regional insurers have long since been acquired by national underwriters, the last year has given rise to several new regional underwriters, many of them seeking to play off of the perceived antipathy of the independent agent toward the national insurer fielding direct operations.
Townsend’s regional title insurance company, Farmers National Title Insurance Company, which does not have direct operations, is one of several new regional firms looking to “fill the vacuum” created by consolidation in the underwriter segment. Townsend believes the role of the regional underwriter will be to “fill a gap in the need for service and technology that the Big Five may not always look for. In Missouri, for example, we service many smaller, rural agencies that provide an excellent source of revenue but might not be large enough to make it onto the national underwriters’ radar.” Reimer agrees that there will be a place for the regional underwriter, noting that “as long as their business models are not to do direct business but rather support and feed their agents, there will be an increasing place for them.”
It is clear that the agent-underwriter dynamic will not revert to what it was years ago. Technology, regulation, and the demands of a changing marketplace ensure a changing service environment. However, it also seems clear that while the independent title agent’s role may change, the independent title agent will continue to have a significant role in the industry. As recently as 2003 a staggering 80 percent of the total premiums written included the work of independent title agents. There can be little doubt that independent agents will continue to have a place in this industry. Successful agents will need to adapt to new business models and adjust to changing market conditions. However, change is nothing new in an industry that is inherently cyclical. Occasionally lost in the current discussion about “normalization” and soft markets is the fact that the title industry is only one or two years removed from a historically successful performance. The long-term outlook for the title industry is nothing if not positive. By wielding new techniques and methods to deliver the quality of service on which the industry’s reputation is based, the forward-thinking independent agent will continue to flourish.
|Robert Miller is CEO and co-founder of TSS Software Corporation in Annapolis, MD. He holds a Ph.D. in Economics and has over 30 years of real estate industry experience. He can be reached at 443-321-5612 or firstname.lastname@example.org|