Florida Title Insurance Study Advisory Council Delays Finalizing Recommendations; Demotech President: Title Industry Loss Ratio Comparable to Property Insurance
Oct 13, 2009
The Florida Title Insurance Study Advisory Council (“Council”) met for the fifth time on October 12, 2009, during which it heard testimony from title insurance industry experts. The following is a brief summary of the discussions that took place during the four-hour meeting.
Although the agenda called for discussion and voting on the Council’s final recommendations, Florida Lieutenant Governor Jeff Kottkamp, Council Chairman, postponed voting until the next scheduled meeting on December 3, 2009. The Council’s final report is due to Florida Governor Charlie Crist and the Florida Legislature on December 31, 2009.
Florida Department of Financial Services (“DFS”) Financial Administrator Ray Wenger reported on the Real Estate Settlement Procedures Act (“RESPA”) and its implications for the title insurance industry. RESPA, a consumer protection law enforced by the United States Department of Housing and Urban Development, is designed to help home buyers to become informed consumers and better shoppers. RESPA also outlaws certain practices by settlement service providers which historically have served to needlessly increase a consumer’s closing costs. Mr. Wenger noted that changes have been made to RESPA to address requirements for good faith estimates, such as the term of the loan, interest rate, escrow requirements, penalties and closing costs.
Demotech President Joe Petrelli explained the differences between title insurance and property insurance from an actuarial perspective, suggesting that there is a general disconnect between the collection of title insurance data and financial reporting requirements that result in inaccurately reflected loss ratios.
Mr. Petrelli stated that title insurers resolve most claims with minimal expense (approximately $200) and suggested that the loss ratio (approximately 75 percent) for title insurance companies is comparable to that of property insurers.
Another major distinction between property insurance and title insurance is that title insurance coverage covers incidents occurring prior to the policy inception date, while property insurance covers events subsequent to the policy date. Mr. Petrelli said that the title insurance industry could do a better job of capturing the retrospective nature of claim costs.
In response to a question from the Council members about the characteristics of a well-rated insurance company, Mr. Petrelli explained that a well-rated company would have liquid assets, a statutory premium reserve greater than the actuarial estimate, adequate leverage and a strong ability to pay claims.
Regulatory Research Corporation President, Dr. Nelson Lipshutz, presented the objectives and options for title insurance rate review and regulation, using the processes of different states to illustrate that no two states are alike in their procedures. Concluding that comprehensive regulation is the most effective policy, Dr. Lipshutz said that partial regulation lends itself to almost no regulation. He also noted that low premium costs could lead to inadequate services and insolvency.
The Council also addressed liquidation and rehabilitation-related issues. Florida Office of Insurance Regulation General Counsel Steve Parton suggested that these issues should be addressed by a risk-based blocking of policies. However, it does not appear that this approach will be used.
Discussion took place regarding the creation of a guaranty fund for companies in rehabilitation or liquidation. However, this measure does not appear to be necessary since there are so few title insurer insolvencies.
It was noted toward the conclusion of the meeting that The Florida Bar had submitted written testimony to Chairman Kottkamp, however those documents had not yet been seen by all of the Council members.
To view additional information regarding the Council, click here.
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