Title insurance: Shocking numbers should kill merger, group tells DOJ

Industry executives in Florida sing the merits, but the Consumer Federation of America says a proposed merger of two of the top four U.S. title insurance giants represents bad news for home buyers from West Palm Beach to Walla Walla, Wash.

CFA wrote letters to the U.S. Department of Justice and state regulators urging them to stop the marriage of Jacksonville-based Fidelity National Financial, the nation’s largest title insurance concern, with No. 4 Houston-based Stewart Information Services. The combined corporate families would control about 44 percent of a nearly $15 billion market, according to 2017 industry figures.

“The combined entity would control almost half of the title insurance market and make an over-concentrated, excessively-priced market even more expensive and abusive to American home buyers,” said J. Robert Hunter, CFA’s director of insurance. He is a former Texas insurance commissioner and past adviser to Florida regulators.

In announcing the planned merger March 19, Fidelity National said it “intends to achieve at least $135 million in operational cost synergies” and boost earnings. The deal is subject to Stewart stockholder approval and federal and state regulatory approvals. If it is approved, closing might not come until the first or second quarter of 2019.

FNF Chairman William P. Foley II said in a statement “we see tremendous potential” to grow the Stewart brand “as part of our long-time, successful strategy of operating multiple title insurance brands under the FNF umbrella.”

There’s no mention of potential benefits or savings to home buyers in the release, but FNF CEO Raymond Quirk noted “we believe there are significant operational efficiencies we can bring to bear by leveraging FNF’s shared services infrastructure that will provide meaningful long-term value creation opportunities for our shareholders.”

Hunter, who testified before Congress on the issue more than a decade ago, argues the deal threatens to make matters considerably worse in an industry he says has long fleeced consumers.

So what is title insurance again? Not many home buyers give it a ton of thought before they see it in papers to be signed at closing. It’s a kind of insurance designed to defend and compensate buyers and lenders in case of challenges to the title ownership, involving records that show who has rightful legal claim to the property.

Though consumers are typically the ones paying for this insurance, they often leave it to real estate professionals to arrange it. The rare home buyers who try to buck the system and shop around may find it no simple task to locate dramatic price differences, as title insurers wearing a whole raft of different brand names operate in a handful of corporate “families.”

This much seems clear: Premiums are growing fast, to $14.8 billion in 2017  from $9.4 billion in 2011, according to data The Palm Beach Post requested from an industry group, the American Land Title Association. That included more than $1.4 billion in premiums in Florida last year.

Yet the share of premiums spent to cover insured losses has been falling steadily. Only four cents out of every U.S. premium dollar paid in 2016 went to insured losses, down from nearly 11 cents in 2011. Hunter called that “shockingly low.” Loss ratios in other kinds of insurance such as home, car and health often run closer to 80 percent.

ALTA vice president of communications Jeremy Yohe said CFA’s account misses the mark about a business that is different in many ways from other kinds of insurance. Title insurance premiums typically cost 0.5 percent of the purchase price of the home, he said.

“This is far from excessive and in line with the cost of protecting a buyer’s property rights in Europe and other industrialized nations,” Yohe told The Post. “Unlike other types of insurance, title insurance companies deliver for their customers by spending time and money uncovering and fixing potential claims before closing. The low loss ratio is due to the search and exam, and curative process that’s done prior to issuing a policy. This work not only leads to appropriately low claims rates but also better serves home buyers.”

That’s not the tale Hunter weaves. His March 26 letter to Assistant Attorney General Makan Delrahim says growing market concentration only compounds problems of “reverse competition.” He says title insurers pay virtually no attention to consumers who actually pay for the products and the real game is to get real estate professionals to steer business to the title insurers.

What CFA calls “huge kickbacks, expensive gifts, and other inducements from the insurers to real estate professionals” raise the price of title insurance to “absurdly high levels.”  According to the group, a $500,000 title policy that costs $2,700 in New York sells for only $110 in Iowa, which years ago changed the way its title insurance system works.

Industry officials dispute portrayals of a systemic problem, but records show recurring tangles with regulators and government agencies. Fidelity reached a $4.5 million settlement with the U.S. Department of Housing and Urban Development in 2011, The Post reported. HUD claimed the company “engaged in a widespread and years-long campaign to pay real estate brokers kickbacks.” Fidelity denied wrongdoing in the settlement.

“We call upon your department to undertake careful analysis of this merger,” Hunter’s letter to DOJ says. “We believe it should be stopped.”

U.S. Title Insurance Market

Premiums:

2011: $9.4 billion

2012: $11.2 billion

2013: $12.5 billion

2014: $11.4 billion

2015: $12.8 billion

2016: $13.9 billion

2017: $14.8 billion

Claims

2011: $1.02 billion

2012: $908 million

2013: $828 million

2014: $680 million

2015: $693 million

2016: $587 million

2017: Not available yet

Loss Ratio:

2011: 10.9%

2012: 8.1%

2013: 6.6%

2014: 6.0%

2015: 5.4%

2016: 4.2%

2017: Not available yet

Source: American Land Title Association