NAIC Eyes Title Insurance Overhaul
By Steve Tuckey
National Underwriter News
March 16, 2005
Salt Lake City Utah — Reacting to charges by Colorado and California authorities that title insurers paid kickbacks to secure business, state insurance regulators meeting here said they will explore the sector's ratemaking and other issues.
Nebraska Insurance Commissioner Tim Wagner, speaking at yesterday's final session of the National Association of Insurance Commissioners spring meeting, said a possible review of the model law dealing with title insurance could be in order.
But Mr. Wagner was puzzled about how to go about making revisions. “I have read the law and I don't understand how you can create a rate for this line of insurance,” he said.
Like the broker fee compensation issue, alleged corrupt practices in title insurance have caught the eye of insurance investigators and could result in some NAIC action.
Colorado was the first state last month to disclose what officials said was a rampant pattern of title insurers paying kickbacks to developers and mortgage companies that referred business to the insurers.
According to regulators, the title insurers kickbacks took the form of premium payments for reinsurance that the title insurers purchased from captive firms operated by the companies who sent them business. The reinsurance was for business that involved virtually no risk, according to regulators.
While some regulators claim such kickbacks raise the price of title insurance for all consumers, the insurers themselves and builders claimed the payments were legal.
Colorado has reached a $24 million financial settlement with one of the firms, First American Title, on behalf of all of the firm's customers nationally whose policies were part of the scheme. The firm has denied any wrongdoing.
An overflow crowd attended Monday's NAIC meeting of the Title Insurance Working Group in which Colorado Deputy Commissioner Erin Toll delivered a report on the investigations that have involved state insurance regulators and attorneys general across the country.
At yesterday's meeting of the parent Property-Casualty Committee regulators seemed unsure of just what action should be taken.
Florida Commissioner Kevin McCarty noted that the title industry loss ratio is 8 percent. Mr. Wagner said that perhaps an overhaul of the entire industry is in order but could not specify how such actions would answer the current corrupt practices that are said to have infiltrated the industry.