Ed Rybczynski was directly on-target with his Title-opoly post. Some underwriters have determined that claims are just another line item on the annual report that can be forecasted, managed and contained. They should know better.
My guess is that the claims analyses were completed by a team of MBAs from the finest business schools, who have rigorously mapped out the title insurance and claims process without the slightest comprehension of why the system works. Prior to entering title insurance, I saw this time and time again. A bunch of bright people, completely focused on the task at hand, oblivious of how it fit into the greater machinery.
I am sure that their analysis is absolutely technically correct and numerically sound. I am also as sure that it is hopelessly, fundamentally flawed. The system of Title Insurance we have today works because it is based on a system of claim avoidance, not claim mitigation.
Avoiding claims produces a clear or marketable title. Mitigating claims produces a “land ownership lottery” where one purchases the option to a cash payout if an error in title is ever discovered. Of course, the payout potential is severely limited by the terms of the policy.
I think Robert Franco’s Source of Title postings on search quality and Attorney’s Opinions get close to the point, but miss the economics that drive the industry. Buyers of title insurance are interested in marketable title, not a cash payout when there is a problem. The investment in real estate is just too important for Russian Roulette.
If the industry stays this path, buyers and regulators will soon realize the product is of little to no value to either the purchaser or to the land title system. When that happens we are all in for a very rough time.
7 responses so far ↓
Ed Rybczynski // March 5, 2007 at 8:56 am |
Dave
Great post and congratulations on the new site. It looks great and will inspire many others.
Judy Barton-Stricklin // March 5, 2007 at 10:07 am |
I enjoyed your post and am happy to see people speaking out. Congratulations on your new site.
Diane Cipa, General Manager, The Closing Specialists® // March 5, 2007 at 10:08 am |
Excellent and welcome to the title blogosphere, Dave.
I think you’re point is well taken. I also think the homeowner wants to protect their “home.” Many people are emotionally attached to their home. They put their love and sweat into it. It’s the place where memories are made.
Traditional title insurance services do much to secure their home by vetting and fixing problems BEFORE the purchase. Claims that occur after the insurance is issued are minimal. That’s what is so crazy about the media hoopla this year. We are actually doing our jobs when we keep claims at a minimum.
Will the consuming public be happier if we have an explosion of claims and “homes” are at risk and sunk into litigation? Will they feel they’ve finally gotten their money’s worth just because the title companies are writing checks?
I don’t think so. I think they’ll be looking for somebody’s head to chop off and it won’t be us because we’ll be selling hot dogs by the sea shore by then.
Pat Kitano // March 5, 2007 at 10:38 am |
Welcome! Great post… the only thing I can say is I don’t believe there are any MBAs in claims analysis, which is an actuarial activity. Actuaries get MBAs to move out to the front lines. Title companies have only recently begun to hire MBAs and it will prod change because that will be one of the missions of those MBAs.
Robert A. Franco // March 5, 2007 at 11:38 am |
I agree with the underlying theme that it is much more important to clear the title and avoid claims than it is to simply provide insurance to a homeowner. However, the “economics that drive the industry” is not marketable title. Economically, it is more profitable for the underwriters to accept certain risks and pay the resulting claims.
The homeowner, unfortunately, doesn’t understand the difference between marketable title and insurable title. Furthermore, the latter satisfies the requirements of the lenders and those who purchase mortgage backed securities. The homeowners should be “interested in marketable title,” but that is not their main concern. They usually only purchase title insurance because they have to as a condition of the loan.
Due to the lack of awareness and understanding of the consumers, the title insurance industry should be looking out for the homeowners’ best interests. This is something that the traditional title insurance industry used to do, and something that the Iowa Title Guarantee Program still does.
The title industry needs to realize that this is not only bad for our consumers, it is bad for all of us. Once the value of title insurance diminishes to the point where the secondary market is forced to investigate alternatives who will buy our product?
Susan Palmer // March 6, 2007 at 9:35 am |
I have been reading the Title-Opoly site for the past few weeks and want to thank all of you for your concern for our industry. I believe that a thorough title search must be done to protect the homeowner from claims that can arise after closing. The public are laymen and they don’t understand our industry… they feel that we are getting something for nothing. But I can testify that I have seen how a thorough seach on a property can protect the homeowner.
In Utah we have so many boundary problems and if you have a search done in India how they ever going to see the true picture. That is one thing that I have continued to ask myself over and over again, sure they can get access to the records but sometimes in our county things are not posted for a week, therefore problems can be missed.
Thanks so much for your site. I will continue to read it and use it for teaching my employees.
Diane Cipa, General Manager, The Closing Specialists® // March 6, 2007 at 10:43 am |
In Pennsylvania, the PAR sales agreement specifically defines marketable title as insurable title….such as would be insured by a reputable title insurance company at regular rates. It actually help us because it eliminates arguments over marketability.