February 25, 2010

VIA REGULAR MAIL

The Honorable Morris J. Chavez
Superintendent
New Mexico Public Regulation Commission
Insurance Division
P.O. Box 1269
Santa Fe, NM 87504-1269

Re:       Proposed Title Insurance Rate Increase

Dear Superintendent Chavez:

On behalf of independent title insurance agents, independent title insurance underwriters and interested title insurance industry stakeholders who are supportive members of our organization, please allow me to formally introduce you to the National Association of Independent Land Title Agents (NAILTA).  NAILTA was formed in November, 2008 by concerned independent title insurance agents from across the country who are determined to foster transparency, promote education and understanding and preserve the value of the land title process.


Recently, I learned of the ongoing title insurance premium rate issue in New Mexico.  News reports suggest that there is a wide variance of opinion on the appropriate rate for title insurance, including proposals ranging from a 17% increase in rates to a 13.8% decrease in rates.  By now, each stakeholder in the rate-setting process has undoubtedly cited statistical information to buttress their position on the need for an increase or decrease.  As the President of a national trade organization dedicated to the preservation of independently-owned and operated land title agencies across the United States, I believe it is important for you to understand how any increase or decrease in rates will affect our members in New Mexico.

Title insurance may be one of the least understood and most improperly maligned forms of insurance available to the American consumer.  Since its inception in 1876, title insurance has suffered from the same problem — the inability of the producer to effectively communicate its value to the consumer.  The reasons for this communication breakdown are plentiful.  The most important of which is the fact that title insurance is not marketed to the ultimate consumer of the product.  Instead, it is marketed to the referral source (i.e. the real estate firm, mortgage company, homebuilder, lender, developer) who, in exchange for the referral, often times receives incentives or other kickbacks to encourage the relationship and continuing referrals.  Consumers rarely participate in the process of selecting their title insurance provider and often, whether voluntarily or involuntarily, defer the selection of title insurance provider to the referral source.  As a result, title insurance is, more or less, a closed system of competition.

Why is the competition structure of title insurance relevant to a discussion concerning premium rates in New Mexico?  Most who argue for rate increases or rate decreases look solely at pure financial data to support their cause.  The generalized theory is that if title insurance claims have increased, rates must correspondingly increase.  Since 2005, title insurance claims have increased across the United States.  In New Mexico, gross title insurance premiums decreased from $113 million dollars in 2007 to $82 million dollars in 2008.[1]  At the same time, title insurance claims increased from $2.8 million dollars in 2007 to over $4.1 million dollars in 2008.[2]  If these were the only facts, it would follow that rates should be increased.  However, as you know, the title insurance premium rate question is not just a numbers phenomenon.

Over the past five years, title insurance industry standards across the United States have been slowly eroding.  Our members from California to New Jersey and Minnesota to Florida have watched as title insurance underwriters have retreated from traditional standards of title insurance examining as pure cost-saving measures and openly permitted their agents and direct operations to perform such risky behaviors as issuing title insurance on purchase transactions without performing a full title search or no longer requiring that restrictions and easements of record be shown as exceptions to coverage on title policies.  These issues were well-documented by NAILTA in an Amicus Curiae brief that we filed in the United States Ninth Circuit Court of Appeals case involving Denise P. Edwards v. The First American Corporation, et al., United States District Court, Central District of California, Case No. 2:07-03796.

Not surprisingly, many of these reported cost-savings measures have occurred since 2005.  Likewise, title insurance claims during this period have increased.[3]  In many cases, these cost-savings measures were done to offset the declining title insurance revenues caused by declining home values, the corresponding decrease of title insurance premiums and the increase of incentivized referral arrangements among title agents and the referral sources noted above.  Thus, in a closed system of competition like that present in most of the title insurance industry, the actions of the group can have a direct impact on the data used to support the rate changes, leading to a nearly incurable cycle of abuse in the system.

It is expected that a slow economic recovery will exacerbate the demands on small businesses in the title insurance industry.  Thus, it is imperative that title insurance regulators not only look to resolve short term issues such as premium rates, but also the root causes of these rate swings.  If this is done, longer term pressures on the title insurance industry caused by its historic inability to communicate with consumers might be addressed and alleviated now — before these important independent agents are squeezed out of the market by risky and anti-competitive market behavior.

Independent land title agencies provide important safeguards against the eroding nature of title examination and underwriting standards and help to keep title insurance claims in check.  Independent land title agencies suffer none of the direct conflicts of interest found in the performance of similar title duties by affiliated business arrangements.  Independent land title agencies promote fair competition and help maintain the overall solvency of the industry.  With a healthy title insurance industry, there is less of a need for repeated rate questions.  When there is more competition and more business for all, everyone benefits.

Your support and dialogue are critical to NAILTA’s efforts.  Our members are title examiners, title abstractors, title insurance agents, real estate attorneys and underwriters from across the United States, including those from within your state.  We represent hundreds of years of combined experience from all corners of the title insurance industry.  I invite you to contact me so we can schedule a time to discuss the state of the title insurance industry and our efforts to help improve the business of title insurance in greater detail.

On behalf of our national membership, I ask that you please include NAILTA in your department mailing and distribution list for any and all correspondence regarding the title insurance industry.  Please make sure to forward any proposed rulemaking or other department bulletins relevant to the title insurance industry to my attention.

If you have any questions, please feel free to contact me.  I can be reached via our website at www.nailta.org or via telephone at (610) 361-2655.  Our email address is info@nailta.org.  I look forward to hearing from you and helping to improve our industry.

Very truly yours,

Charles W. Proctor, III, Esq., C.L.T.P.
President,
NAILTA

 


[1] Performance of Title Insurance Companies – 2009 Edition, Demotech, Inc., p. 385

[2] Id.

[3] Id. at 248