Since title insurance involves the acceptance of past rather than
future risk, the underwriting process differs markedly from the
typical property-casualty underwriting process. That is, property-casualty
insurers are concerned with determining the probability of loss
based on the characteristics of the insured, while title
underwriters are concerned with reducing the possibility of loss
by discovering as much information as possible about the past
through extensive searches of public records and stringent
examination of title. The title insurance industry is in the
claims prevention business rather than the claims paying
business.
The title insurance plants which must be maintained and kept posted daily regardless of the volume of orders received represent a high fixed cost to the industry. The high degree of skill necessary to search and examine title (and to close the complex real estate transactions) contribute to the high ratio of salaries to total expenses. Both the high fixed costs and salary ratio cause the high percentage of total expenses retained by agents inherent in the title industry.
All insurers must physically produce policies. But, while policy preparation for, say, an automobile policy requires little more than filling out a few blanks on a standard form, the preparation of a title policy involves the transcription of a complex legal description unique to the insured property, along with enumeration of the often equally complex and unique terms of easements or other special property rights.
In property-liability lines of insurance (such as automobile), agents' commissions generally range from 10 to 25% of the premium on policies which agents write. In title insurance, depending upon the rate structure and work performed in a particular locale, the agent keeps as much as 90% of the total title insurance premium charge. The reason for this great difference is that title insurance agents perform a very different function from property-liability insurance agents, and the very term "commission" is not really appropriate for the title insurance agent's compensation, which should be more accurately described as "agent's retention" or "agent's labor and work charges." The title insurance agent makes sales, searches and examines title, produces the policies; and in many states, closes the real estate transaction and disburses the funds through escrow. The title insurance agent is a full-service subcontractor for all aspects of title insurance.
Most insurance lines require recurring premiums paid monthly, quarterly, semi-annually or annually which provide a continuing income stream to the agent and insurer and, upon non-payment terminate continuing coverage. On the other hand, title insurance enjoys only a one-time premium and the coverages provided by the policy continue indefinitely so long as the insured has an insurable interest in the property described in the policy. A lender’s policy transfers automatically to the note holder no matter how many times the note is sold and also provides continuing coverages should the lender acquire the property by foreclosure or deed-in-lieu of foreclosure. An owner's policy continues to provide coverages for as long as the insured owns the property and some coverages for warranties made by the insured even after sale to another person.
Note: Thanks to the American Land Title Association for these concepts.
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1996, Title Resources Guaranty Company
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Last modified by EF on May 15, 2006