New York State Assemblyman Richard Brodsky and State Senator Eric Adams have recently proposed a "public option" for title insurance in New York, based on a similar system that has been in place in Iowa for decades. 

But proponents and detractors alike don't really seem to be getting to the heart of the issue in many cases.

The first odd arguments occur in the legislators' press release, courtesy of Senator Adams:

Title insurance costs in New York State are excessive, and title insurance is a significant part of title closing costs," said Senator Eric Adams. "There is a single rate schedule for all title insurers, eliminating pricing competition and making it impossible for a home buyer to shop for less expensive coverage. As a result, annual industry premiums exceed $1 billion, while annual claims payments are a mere $55 million (less than 5% of premiums). Immediate and fundamental reform is needed to make title insurance more affordable for New York families. The legislation Assemblyman Brodsky and I are introducing is designed to accomplish that goal and provide financing for infrastructure development and affordable housing."

If, as he says,  title insurance rates are so high in New York "as a result" of the single rate schedule that insurers are allowed to submit jointly through a rating bureau, why not make the simple reform of changing the regulations regarding how title insurers are permitted to set rates in the state?  New York is one of only a few states that allow title insurers to submit a common rate through a ratings bureau.  The state could simply prohibit title insurers from collaborating in setting rates, if the current method of setting rates were truly the problem.

And when someone uses the low claims-to-premiums ratio of the title insurance industry compared to other types of insurance to bash the industry, it's a red flag that they either are demagoguing the issue or they don't understand it very well.  Many have pointed out the error in considering the claims rate on title insurance to the exclusion of the value to the consumer created by all the work that goes into assuring a low rate of claims.   In fact, the closer the title insurance claims rate is to 0%, the better the public is served, all else being equal.

Not surprisingly, the American Land Title Association has taken a position against the proposal.  But their arguments against the proposal fall into two categories: rebuttals of some of the weaker arguments that have been made for the proposal, and its own set of weak arguments against the proposal.

And there have been several weak arguments made for the proposal. For example, ALTA correctly points out the obvious flaw in arguments against private title insurance that focus solely on the low claims payout ratio in title insurance compared to other types of insurance. 

But ALTA makes no argument against the claim that Iowa's state system of title insurance is cheaper, or that an Iowa-like system would eliminate the practice of illegal kickbacks that are paid for by New York's citizens.  Try in vain to find the word "kickback" anywhere in ALTA's opinion on the proposal.

Instead, ALTA serves up weak tea such as this:

Nationally, the title insurance industry spends $170 million per year to purchase copies of public documents. New York's share of this would be lost with the advent of a government-run title insurer. 
 

While it is true that state and local government profits from copy fees would be lost (if there are any profits, once you consider the cost of equipment, software, maintenance, and consumables), it seems rather odd that someone would defend the use of so much paper in a digital age.  Ideally, a system to guarantee title would use less paper along the way.  And in the end, those copy fees, and the costs of the countless hours spent making those copies, are borne by the public as a frictional cost which is reflected in the cost of insuring land titles.  Preserving those fees should not be a major consideration.

I'd apply similar logic to this argument from ALTA against an Iowa-style system in New York: 

A government-run title system would eliminate more than 2,750 title abstractors and examiners in New York and would impact many of the 60,000 attorneys in the state that provide title insurance services among their practice. 

Again, there's no denying that a fairly radical change in the way that titles are guaranteed would impact some jobs.  But earlier in the piece, ALTA made an argument that directly conflicts with the idea that all those abstractors would be out of work:

From procuring the legal description and ownership to performing a title search on a property and curing any title issues, there are many detailed steps needed to issue a title insurance policy. This work must be performed, whether a state or private entity insures the title.

If that's true, then the safe assumption is that it will be New York's current base of abstractors and attorneys that will be doing that work, just as abstractors and attorneys do this work in Iowa.  Some workers will undoubtedly see their roles change, and that should be a consideration.  But to pretend that all New York abstractors will be thrown out on the street if a title insurance public option is adopted is just ridiculous.

ALTA also says this:

The current government-operated system in Iowa is often cited as an alternative to traditional title insurance, however, the Iowa model is not transferable to other states. The title system in Iowa was implemented at a time when there was no established industry in the market. States looking to implement a similar system in an existing real estate practice would be anything but quick and effective.

This is a slightly more compelling argument, especially since proponents of a title insurance public option tend to highlight savings to consumers in their arguments.  Implementation of an Iowa-style system for guaranteeing title would require significant initial investment by the state, and would not be easy.  Robert Franco said this in a post on the Source of Title blog, which I partially agree with:

Iowa has a good system in place - I like the model. But, would it really be practical for any other state to try to mimic it now? Probably not. Iowa has a long history of regulating their abstractors and many participating attorneys who know what they are doing. Most other states have not regulated their abstractors, and non-attorney title agents are much more common. And, I do not mean to say that a non-attorney can't do the job... but good luck finding them if they aren't going to be able to get a split of the premium. Basically, Iowa has the infrastructure in place for their system - the other states clearly do not.

The part I would agree with is that other states do not have the infrastructure in place for their system.  But I do not agree with the idea that a good model for a system should be ruled out just because the transition to that system would be problematic.  Even if there are significant up-front costs and some years of adjustments, the payoff could be a system of low cost land title guarantees for generations.  Perhaps the future savings do not justify the initial investment, but I do not think that it's obvious that that's the case.  [note: Robert has clarified that he is not necessarily opposed to the idea of other states implementing a title guarantee system similar to Iowa's.]

In summary, my initial opinion on the issue of a "public option" for title insurance in New York or any state are as follows: I think that New York's legislators should at the very least take a bit more care in their public statements on this proposal, and I think that ALTA should cease whitewashing non-competitive industry practices that hurt the consumer if it wants to be credible when it argues against proposals like this.