Friday, October 12, 2012

FSBO Sellers - Flat fee MLS Sellers - home buyers

FSBO Sellers - Flat fee MLS Sellers - home buyers

Contact real estate attorney James N. Graham
Madison, Wisconsin

 Accession Law LLC

Tuesday, October 2, 2012

What Is Going On With Title Insurance Premiums In Wisconsin?

Atty James N. Graham
Accession Law LLC
Question:  What is going on with title insurance premiums in Wisconsin?

Answer:  Good question.  We have received rate sheets from several local title insurance companies that show a significant increase in policy rates.  For example, the owner's title insurance premium (usually a seller closing cost) on a $252,000 house has increased from $627.00 to $934.00 as of the fall of 2012.  

At least one company implied that the rate increases  had something to do with recent action by the Wisconsin Office of the Commissioner of Insurance.  The Wisconsin OCI did issue a bulletin in April of 2012 which can be found at 0412titleins.htm .  This bulletin does not reflect a change in either the law or the enforcement of the law.  Title insurers have been required to file rate schedules with OCI for many years.  This bulletin simply reminds title insurers of record-keeping requirements for rates and, in particular, for cases where the rates are lowered below the published rates.

So what is the reason for rate increases?  Note that the rate increase is not an isolated case where one company raised its published rates.  At least 3 of the major title insurers have increased their rates in exactly the same fashion.

If there is not a regulatory reason for the increase, there must be a business reason.  One of the companies explained the rate increase as follows:

"Wisconsin rates have lagged far behind the rates elsewhere in the country and in the neighboring region, making it a very difficult place for the title underwriters to do business, and forcing them to cut back on support services and other operating expenses that would benefit consumers.  The new rates, although still below much of the country, bring us more in line with surrounding states and will permit a greater focus on customer service and better products."

This does not explain why there is a need for a nearly 50% increase in one year.  It also does not explain why the major insurers moved in synchronized fashion.

In discussing this question with other real estate attorneys, I have heard several hypotheses as to the reason for this move.  One attorney suspects that the foreclosure epidemic has resulted in higher levels of claims.  While this may be true, the explanation strikes me as unlikely for several reasons. 

First, the title insurance premium is really only partially an insurance premium.  Most of what is being purchased is not "insurance" in the standard risk-sharing sense but rather a fee for the service of searching the title and analyzing the risks.  Second, this would be easy to establish if it were true and would undoubtedly be offered to explain rate increases to customers.

Another explanation I have heard is that the national insurers have long disapproved of a purportedly common practice in Wisconsin ie - deviation by title insurance agencies from the published rate sheets.  In my experience, the rates offered by local agencies have been extremely competitive to the point of being identical.  The agencies have increasingly generated revenue through increased closing fees and other sources of revenue (which are not passed through to the national underwriting insurers).  In order to limit this, so the theory goes, the national companies each concluded that they should raise their rates.    

To date, I am uncertain how to explain the curious substantial and identical increase in rates among different companies.  I am certain that it has nothing to do with a change in the law.

Attorney James N. Graham practices real estate and business law with Accession Law LLC