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Source of Title Blog

Should We Allow Consumer Incentives on Title Insurance?
by Robert Franco | 2007/08/07 |

I have always thought of the filed insurance rates as a consumer protection device to keep title insurance companies from over-charging customers who normally do not select their title company. But... what if the title company wants to charge their customer LESS than the filed rate? Wouldn't that be good for consumers?

New Jersey Senate Commerce Committee is currently reviewing S-2229, which would allow title insurers and their agents to offer rebates, discounts, and other incentives to their consumers notwithstanding the filed rates. Currently, they may not "pay... as an inducement to insure, or after insurance has been affected, any rebate, discount, abatement, credit or reduction of premium or special favor, advantage, or other benefit.. or valuable consideration or inducement... not specified or provided for in the policy, except to the extent provided for in [the filed rates]."

S-2229 would add another exception for offers to a person purchasing title insurance, who is not required to use the offering title insurance provider, and it prohibits the savings from being added to any of the person's other costs.

According to an article on NJBIZ.COM the New Jersey Land Title Association opposes the bill, along with some area agents.

Source of Title Blog ::


Led by the New Jersey Land Title Association, a trade group in Freehold, opponents of the legislation say it would give large companies the power to dominate the market.

...

Carl Samson, president of the New Jersey Title Insurance Co. in Parsippany and the immediate past president of the New Jersey Land Title Association, says the bill would create “an unlevel playing field” because “smaller companies can’t compete when there are predatory rates.”

Kathleen Lockwood, president of Stewart Title of Central Jersey in Freehold, says the legislation would be especially harmful during lulls in the housing market. “Here in New Jersey, we’re having a significant downturn,” says Lockwood. “Competition is already fierce enough [without title insurers being able to offer lower prices].”


But not everyone thinks that allowing title agents to offer incentives to consumers is a bad idea. MyClosingSPACE.com would like to charge the same $99 fee they charge in other states, but the current New Jersey legislation sets the minimum at around $185. According to MyClosingSPACE.com's Website, the company has offices in New York, New Jersey, Florida, and Pennsylvania. The company has a unique approach to pricing, with an all inclusive fee that includes recording costs, loan policy, owner's policy, and endorsements. They handle the settlement for $299 (closing services in NJ are $300 due to state regulations), and they offer convenient closings "any place, at any time." They also do not charge wiring, overnight, courier, or notary fees.

There is much to be said for such transparent pricing, unfortunately, the filed rate structure in many states makes that difficult. I have often thought about offering a flat fee of some sort... after all, the cost of actually producing a title policy is relatively the same on a $50,000 property as it is a $500,000 property. Obviously though, the risk incurred by the underwriter does increase and they would still need to collect their share of the appropriate premium.

I have considered some type of premium-only arrangement. On a $500,000 sale with an owner's policy and loan policy, that would be feasible. However, on the $50,000 refinance with only a loan policy it would not be possible. There would have to be some sort of a minimum policy amount where below that amount you would still charge the exam and closing fee on a graduated scale, but when you start charging different fees for different borrowers you start to run afoul of RESPA.

RESPA is one of my concerns with the New Jersey bill. It seems to allow for inducements which may violate Section 8 of RESPA, unless you have an AfBA, which is exempt from such provisions. Would it be possible for New Jersey to expressly allow something prohibited by RESPA?

I also worry about what "discount pricing" would do to the quality of work that goes into creating the policy. As more agents fear competition from lower priced agents, they may begin to cut even more corners than seems to be the norm in the industry already. I believe that the quality of the product has suffered as the underwriters have lowered their search requirements over the years. Consumers aren't getting the value they used to get when they purchased title insurance. Could we see that further eroded with "special incentives?"

In my opinion, title insurance doesn't need to be cheaper - it's not over-priced. It needs to be better - it's over-valued. We really should be more concerned with providing the consumer with the peace of mind they used to get by providing them with more traditional services that placed a high regard on a thorough search and clear title.

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com



Rating: 

Categories: Competition, New Jersey Legislation, RESPA, Small Agents

1139 words | 3438 views | 6 comments | log in or register to post a comment


You sure like to present us with si...
You sure like to present us with simple questions that are easy to answer, don't you?

Again, some thoughts before I figure out if I even have an answer to the question.

(a) Although regulated insurance rates have the benefit of preventing people from being rip-offed (at least on the premium), the original impetus as I recall was that back in the day insurance companies of all types used to underbid each other to get business to the point where they were too underfunded to pay claims. The ratings bureaus in the various states supposedly make the decision to increase rates based on an aggregate value of claims from the various underwriters to make sure they are sufficiently funded.

(b) In PA, we used to have two underwriters who had legally permitted rate variances filed with the state so that they could offer lower premiums. I believe both companies have now abandoned these variances for everything except high-end commercial deals because the lower premiums did not act as an incentive for customers or agents. Commercial deals are obviously different since the consumers are more sophisticated and the savings would be substantial. In other words, further proof that offering the same widget at a lower price doesn't really work in our business because of the way the market is structured.

(c) As far as premium rebates go, this is already happening in Pennsylvania and has been going on for years. (You will probably get several angry demands to delete this part of my post after your read it). Essentially, underwriters have taken the position that RESPA prohibits kick-backs to third parties, not the customers themselves (which is why NJ has to have that prohibition written in state law). The underwriters want to see the correct premium on the sheet and then get the correct remittance, but if the agent wants to cut a check from their general account to the customer for $200 after the closing, the underwriters have no problem with it. It just can't appear on the sheet. That is how cut-throat the agency system makes competition in southeast PA.

(d) I have always taken the stance that title insurance rates are too high until someone actually shows me how much the underwriters are really paying in claims relative to what they are collecting. I think these numbers are kept hidden for a reason.
 
by David Jenkins | 2007/08/07 | log in or register to post a reply

Hi Robert,

I thought t...
Hi Robert,

I thought this bill was dead? There has been no action on it since October. Why the sudden renewed interest?

Amy Swinderman
Editor
The Legal Description
 
by Amy Swinderman | 2007/08/08 | log in or register to post a reply

At myClosingSPACE.com we are active...
At myClosingSPACE.com we are actively supporting this bill. We believe that consumers have a right to choose their title insurance provider and if a title company can afford to provide consumers with a rebate they should be allowed to do so.
The bill has been languishing for quite a while now, as Amy mentioned, but it is our hope that increased exposure will revive it. If it passes it will allow for increased competition that actually benefits the consumer paying for title insurance. I am not sure if it is acceptable to add a link here but our site has a few pages dedicated to this issue including one that allows NJ residents to sign the petition asking the Senate to move forward on the bill. If it is OK I will post the URL but I will wait until I am told whether this would be acceptable or not.
 
by Mark Pilatowski | 2007/08/08 | log in or register to post a reply

Mark: Please feel free to post the...
Mark: Please feel free to post the link. The more information, the better. After all that is the ultimate purpose of a blog, to share information and generate discussion. 
by Robert Franco | 2007/08/08 | log in or register to post a reply

Here are the links Robert.
Here are the links Robert.

http://www.myclosingspace.com/pr-summary.aspx

http://www.myclosingspace.com/pr-support.aspx
 
by Mark Pilatowski | 2007/08/08 | log in or register to post a reply

We have just confirmed this bill is...
We have just confirmed this bill is still "under consideration." Though not much has happened since it was referred to the Commerce Committee, it is not dead. Perhaps, its languishing there waiting to die... who knows. It has gotten a little press in NJ lately, so maybe that will develop into something. Maybe its just waiting for someone with an understanding of the industry to pick it up and read it.  
by Robert Franco | 2007/08/09 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

 

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