As a real estate broker, I receive plenty of solicitations for title insurance business. I prefer to deal with people I know and trust, and I avoid dealing with representatives or companies offering anything more than quality service and maybe a beverage or snacks at closings. Since prices are virtually identical from one title company to another, my primary concern is whether the file closes on time and my customers are treated professionally.
Title insurance rates in Texas have been cut by 17 percent in the last 8 years. A cut of 3.2 percent was signed by the Texas Insurance commissioner this year. To see the current title insurance rates you can visit www.tdi.state.tx.us/orders/titlerates2004.
Unfortunately, Texans still pay some of the highest title insurance rates in the country. Part of the problem stems from the fact that title companies do not compete on price, so consumers have no real means of exerting pressure on title companies to lower rates. A 2001 Kiplinger Finance article noted, "In Texas, title companies have had rates of returns in excess of 25% for eight to nine years running." Economic consultant Birny Birnbuam also noted that those rates were well above other lines of insurance such as auto or homeowners. The article goes on to note that claims are rare for title companies, with insurers spending as little as 5 to 10 cents of every premium dollar for claims. By contrast, other lines of insurance spend up to 90 percent of their collected premiums on claims.
Title Insurance is a different animal in the sense that a title insurance policy is a lifelong policy covered by a one-time, upfront premium. Title companies have to collect a reasonable premium to cover their cost of claims. I don't think any one would argue that title companies have to turn a profit, but one only need look at other states to realize there is a better solution for customers. Home owners in Iowa for instance pay the state for a "Title-Guaranty Certificate" which serves the same purpose as a title insurance policy. A 2006 Money article posted by Les Christie noted that Iowa was the only state that bans title insurance sales. The resulting difference in costs for consumers is eye-opening.
The Iowa system adds in the cost of an abstractor ($150) and an attorney ($125) to the cost of the state fee which results in a total cost of about $400 for a home purchase up to $500,000. Compare that with a $500,000 title insurance policy in Texas which currently costs $2979. To be fair, I'm sure the Texas title insurance customer is receiving additional services that facilitate the closing process. The question is whether those additional services add up to $2500.
Another option is to have lenders pay for title insurance and have the federal government implement the program. One thing is for certain; The current system on the books in Texas is not benefiting consumers.
For more a more detailed explanation about what's wrong with the title insurance industry visit the mortgage professor's website at http://www.mtgprofessor.com/A%20-%20Title%20Insurance/what's_wrong_with_the_title_insurance_industry.htm
For more information about real estate and insurance issues in Katy, Texas contact Aaron Layman. He is a licensed real estate broker in Katy, Texas. You can contact him directly at 281-994-5190. You can also visit him on the web at www.AaronLayman.com
