Title insurance regulator considers rate-cap alternatives
|May 2, 2007|
By Matt Carter
SAN FRANCISCO -- A proposal to cap title insurance rates is not California Insurance Commissioner Steve Poizner's "first instinct" for remedying an alleged lack of competition in the industry, but the plan by his predecessor has served as an incentive for further negotiations, he said.
Speaking in San Francisco at the California Land Title Association's annual convention (see video), Poizner said it's the practice of marketing title insurance products and services to real estate agents, mortgage lenders and builders rather than consumers that's at the crux of controversies plaguing the industry.
Title insurers have come under fire for allegedly paying kickbacks and incentives to real estate professionals who refer business to them. Some have also run afoul of regulators for forming "sham" affiliated business arrangements, partnerships that provide companies in the real estate business a cut of the action for providing referrals.
Title insurers, Poizner said, are "partly the victims of all this. The fact is the title industry has been … over a long period of time an attractive place to do business, and the consumer is not the one in many cases that ends up deciding what title company gets selected."
Those who control the customer relationship "have taken full advantage of (their position) ... and they've extracted a price," Poizner said, "That price has hurt you all, and it's hurt the consumer, and that's got to get fixed, one way or the other."
Poizner's predecessor, John Garamendi, aggressively pursued enforcement actions against title insurers, and commissioned a study that found competition lacking. Using the study as justification, Garamendi proposed rolling back title insurance rates in California to 2000 levels, then capping rates using a complicated formula.
The plan for an immediate rate rollback was not included in the final version of the proposed regulations submitted on Jan. 5, in one of Garamendi's final acts in office. The Department of Insurance now plans to begin collecting data on title insurers' costs in 2008, but a legal challenge could delay implementation.
Poizner's background as a Silicon Valley entrepreneur makes him sympathetic to industry concerns about overregulation. But he issued a strongly worded statement supporting Garamendi's proposed rate cap when it encountered an administrative stumbling block in February.
The Office of Administrative Law, which reviews proposed regulations to make sure they don't conflict with state law, said it could not sign off on the rate cap. Poizner said the issues involved were minor and would be resolved.
Positioning himself as a friend of the consumer, Poizner said at the time that he would "aggressively enforce" a rate cap, saying he agreed with Garamendi that "reasonable price competition does not exist for title and escrow services."
Poizner adopted a more conciliatory tone in his speech Monday, saying he's open to alternatives to a rate cap.
"The path that we're currently on in title (insurance) reform is definitely edict based, mandate based, with rate caps -- definitely not my first instinct," Poizner said. "But if you look at the law, I don't have too many levers here. And of course this started with my predecessor, I'm just carrying on."
Poizner said he decided to proceed with Garamendi's proposed rate cap because "major changes" are needed. But one reason he's pushing forward is "to get everybody in the industry serious about getting to the table and coming up with some creative alternatives," Poizner said.
The most important issue is to give consumers access to a range of title insurance products, and the information they need to make informed decisions, he said.
"I'm a believer in free markets, I think when consumers have choices, when consumers are empowered, that's a really good thing," Poizner said.
If no alternative to a rate cap emerges, Poizner said, "We're going to stick with the regulatory path we're on. I've got no choice." But the state's new insurance commissioner said he is "totally open" to bigger and better solutions that would stimulate more competition.
He cited as an example a new Web site, developed by ClosingCorp, a La Jolla-based real estate information services company, that's intended to help Californians shop for title insurance online. Having seen a demonstration of the site, TitleWizard, Poizner praised it for its potential to improve consumer access to information about title insurance.
The site was developed in conjunction with the California Land Title Association, said ClosingCorp Chairman and Chief Executive Officer Anthony Farwell, but can be adapted for use in other states. .
In an earlier panel discussion, Department of Insurance deputy commissioner Sherwood "Woody" Girion called TitleWizard a "great idea," but questioned whether consumers would find it.
CLTA President Rich Macaluso told Inman New that the state's current proposal to set rates based on data it collects on company's expenses could actually increase the cost of title insurance.
Much of the data regulators want wasn't collected in the past, Macaluso said, and the cost of providing it could put smaller companies out of business. The industry has put forward an alternative statistical plan, he said.
"We think (the alternative plan) fits the needs the department has for data collection, which we acknowledge, but it's not quite as burdensome on the title industry as the plan originally proposed by the prior administration," Macaluso said. "We'd like to see that dialogue continue and hopefully acceptance of the alternative plan we've proposed. It would cost us an enormous amount of money to comply with the data-collection plan as presently proposed. That would put small companies out of business, and I'm not sure it would lower the cost of title insurance. It could raise it."
Girion, deputy commissioner of the Department of Insurance's Consumer Services and Market Conduct branch, said regulators are considering the industry's alternative statistical plan "very seriously."
"We are not wedded to our plan; we are not totally sold on their plan; hopefully through the process once it's fully vetted we'll come up with the correct answer," Girion said.
Copyright 2007 Inman News