A new breed of insurance company is promising discounts on a type of policy many home buyers don't even realize they need: title insurance.

Almost everyone who buys a house also purchases title insurance. Mortgage lenders generally require that borrowers buy a so-called lender's policy. Owners can buy a separate policy for themselves. The insurers determine if there is clear ownership of the property and offer protection if someone later claims an ownership interest in it.

Title insurance can cost hundreds of dollars for modest houses and thousands for multimillion-dollar properties. Yet many home buyers don't focus on the product, or the price, until they sit down at the closing. There often is little incentive to shop around, as established insurers typically charge similar premiums and some states set or cap prices. Consumers tend to rely on a mortgage broker, real-estate agent or lawyer to connect them with a title insurer.

Now upstart insurers and agencies are challenging the status quo. Two insurers are marketing directly to consumers on the Internet, offering online quotes to home buyers who plug in basic information about the property, such as location, purchase price and loan amount. And they are offering savings of up to 35% off what established firms charge.

The insurers are EnTitle Insurance, a subsidiary of Entitle Direct Group, which now operates in 40 states and the District of Columbia, and OneTitle National Guaranty, which recently started offering policies in New York state. The state's often-high regulatory hurdles make it an insurance-industry bellwether.

EnTitle tries to draw consumers to its website, entitledirect.com, through online marketing, email campaigns, traditional advertising and word-of-mouth, says Timothy Dwyer, founder of the firm, which launched in 2009. EnTitle has an "A Prime" rating from Demotech, which rates insurer financial stability. That is Demotech's second-highest rating, and the same rating many rival title insurers have.

OneTitle, which also markets to real-estate lawyers and other industry professionals, has a rating of "Substantial" from Demotech. The rating, while lower than EnTitle's, is acceptable to most mortgage lenders, according to Demotech.

Daniel Price, OneTitle's president, says the firm has a reinsurance arrangement with syndicates at Lloyd's, which take responsibility for paying a substantial portion of large claims. The firm has an online rate calculator at onetitle.com.

Insurance agencies also are being more aggressive in competing for title-insurance business.

Redfin, a real-estate agency based in Seattle that has pioneered the use of technology in real-estate sales, started a title-insurance agency, Title Forward, in early 2013. It is based in Philadelphia and sells policies in Maryland, Virginia, Pennsylvania, Georgia and the District of Columbia.

Title Forward is telling customers it can save them money by helping them figure out which type of title-insurance policy they need—and whether they can do without the more-expensive "enhanced" policies many agents sell. These policies can cover home buyers if the seller doesn't pay a contractor who did work on the house just before the sale and later claims he is owed money, according to Adam Wiener, a Redfin executive.

Enhanced policies cost as much as 17% more in the states where Title Forward works, he says. Title Forward's policies are issued by industry giant First American Financial.

Sue-Ann Greenfield, an entertainment-industry business manager from Manhattan, was buying a second home in exclusive Sag Harbor, N.Y., last fall when she went onto the Internet to research closing costs.

"I decided I was going to be proactive," she says. "Why am I spending all this money on title insurance, and I don't even know what it is?"

She ended up with a policy from EnTitle, paying about $3,525. By contrast, she says, the original quote from the insurer that her lawyer recommended was more than $1,000 higher.

For home buyers, the risk is that the new insurers don't have long track records of successfully searching property records, fixing title problems and paying claims.

Still, greater competition will benefit consumers, says Birny Birnbaum, executive director of the Center for Economic Justice, a nonprofit consumer-advocacy organization based in Texas.

Mr. Birnbaum notes that state insurance departments have "requirements in place to make sure a company can pay its claims."

In addition, he says, new insurers can tap established databases to research title issues and hire experienced local appraisers.

The newcomers have emerged in the wake of state and federal investigations.

In 2007, the U.S. Government Accountability Office, Congress's investigative arm, concluded that the title-insurance industry's reliance on agents who sell to real-estate and mortgage professionals and lawyers, rather than to consumers, presents potential conflicts of interest and raises questions about the "reasonableness of prices" paid by consumers.

In hearings in December, New York's Department of Financial Services grilled executives from some big title insurers about whether home buyers have been wrongly stuck with millions of dollars of costs from meals, sporting events and other entertainment spent by insurers and agents seeking to get business from real-estate lawyers, agents and mortgage brokers. The state has said it will issue regulations to limit questionable expenditures.

Established title insurers including First American Financial and Fidelity National Financial say such entertainment costs are legitimate marketing expenses. They also note that many states oversee the rates they charge.