The last time Florida set title insurance rates, nobody knew what blogging meant. The Netscape Navigator browser had yet to be introduced. Spam was still a meat product to most people, not electronic junk mail.
It was 1992. Since then, consumer groups say technology has evolved, greatly reducing the expense of making sure properties being sold don’t have liens or other problems. Florida never quite got around to resetting rates, though. Title costs of $2,153 in Florida for a $200,000 home are 50 percent to 80 percent above those of neighboring states, a Bankrate.com survey released last year based on 2011 costs found.
It’s enough to make some folks, like the Consumer Federation of America, wonder if Florida home buyers are overpaying by hundreds of millions of dollars a year to protect the profits of an entrenched industry. Title insurers and agents gave more than $500,000 to state politicians in the 2008 and 2010 election cycles, The Palm Beach Post reported last year. That included contributions to Gov. Rick Scott and Florida Chief Financial Officer Jeff Atwater, who oversees the Office of Insurance Regulation, and more than $184,000 to the state’s Republican Party.
Not to worry, regulators said last week. They’re on the case. They held a workshop Wednesday in Tallahassee.
So when can Florida home buyers expect to see any difference in rates?
Answer: Hold on to your hats for possible changes in 2017. Or not.
If regulators and legislators take the necessary steps, “the new rates could go into effect in the summer of 2017,” said Office of Insurance Regulation spokeswoman Amy Bogner. “This goal assumes that there are no hitches along the way, such as some party or individual challenging the new rates as being too high or too low. Any such challenge could end up in administrative court and could be further appealed into the regular courts.”
At the workshop, Peter Rice, title insurance coordinator for the Insurance Regulation Office, pledged to be “open and cooperative with the industry” in getting the necessary information to set new rates. A representative of the Florida Land Title Association praised regulators “for being so open to work with us.” Aside from state and industry officials, no representatives of consumers or home buyers, the people who pay the premiums, were present.
“The potential buyers are not included in these discussions,” said Fred McCarty, a retired mortgage officer in Lake Worth. “It’s a joke. It’s a huge expense to people buying houses. It’s a money machine.”
Title insurance, typically required by lenders and paid by buyers, can be very complex and hard to compare among states with different systems and ways of collecting title insurance premiums and related costs, industry and state officials say.
“Comparing states is apples and oranges,” said Jim Moran, CEO of First International Title, an agency with offices in West Palm Beach, Wellington and Jupiter, among other cities.
“Reducing rates may very well hurt the local title companies,” Moran said. “Many make the argument technology is driving our costs down. It actually creates more expense keeping up with it, the same way the consumer pays more for their technology. The cost of employees continues to increase as well. Again our rates have not.”
Industry groups have sometimes pointed to fraud and foreclosure problems in Florida as a factor that can drive costs higher. But direct losses paid by title insurers in the state were $77 million last year — less than 9 percent of $889 million in premiums earned, according to data from the American Land Title Association. Loss ratios were higher in both Alabama (15 percent) and Georgia (10 percent).
Business seems to be booming. Premiums written in Florida jumped 32.5 percent to $235 million in the first quarter of 2013 compared with a year earlier, giving Florida the largest percentage gain among the three biggest states for title insurance.
In recent years, the title insurance business has proved a boon to the highest-paid Fortune 500 executive in Florida, William P. Foley II of Jacksonville-based Fidelity National Financial. He hauled in more than $27 million in total compensation in 2010.
Various attempts to revise rates over the years have stalled. At one point, legislators stepped in to freeze rates for three years.
Five years ago, the state’s Office of Program Policy Analysis and Government Accountability found “a growing need to re-examine the 1992 rates,” in part to measure whether advances in technology have brought down costs. “While rates have remained constant, housing prices in Florida, on which the title insurance costs are based, increased 321 percent from 1980 to 2008; as a result, title insurance premiums paid by homeowners have increased substantially.”
State CFO Atwater “believes title insurance rate relief is overdue,” spokesman Chris Cate said Friday. “He has always supported financial relief for homeowners, and title insurance rate relief is no exception. A data call needs to happen as soon as possible and this process should be expedited so homeowners can get the consumer protection that they deserve at a more affordable cost. And yes, absolutely, homeowners deserve to have their voice heard.”
Title industry groups say their business should not be compared to home, auto or health insurance, where loss ratios may run around 80 percent, because title agents collect up to 70 percent of the premium and perform detailed research to make sure that properties are being sold with clear titles.
In turn, regulators say collecting information from agents, and not just insurance companies, vastly increases the complexity of their task. They have to follow state laws about data collection and hearings, and legislators may be required to ratify at least two steps in the process, officials said.
“If revising title insurance premium rates in Florida sounds like a complicated, time-consuming process, it is,” state insurance spokeswoman Bogner said. “The process is required by Florida statutes and it cannot be changed without changing the statutes.”
She said her office has sent several bills to the legislature to simplify the process, but all have failed.
There are things consumers can do on their own, she said. A 2000 Florida Supreme Court decision, known as the Butler Decision, says that all Florida consumers are free to negotiate the agent’s portion of the title insurance premium, she said.
“They have the right to negotiate up to 70 percent of their title insurance premium before they close on their house,” Bogner said.
In practice, ordinary buyers often don’t know what options they have or find it difficult to shop around and bargain. In Lake Worth, former mortgage officer McCarty said, “I always hated to have to fill out the required Good Faith Estimate and list the costs of title insurance because it was such a ripoff.”
As for rates set by the state, Florida will continue for a while to party like it’s 1992.
At least until 2017. Or maybe later.
What is title insurance?
It’s something nearly everyone who wants to buy or refinance a home has to pay for because lenders typically require it. The definition from the state’s Office of Insurance Regulation: “Title insurance insures owners of real property, or lenders using real property as collateral, against loss arising out of defective or invalid titles and the existence of other liens or other legal claims against titles to real property.”
For more information
Comments are open until July 22 on an early stage of Florida’s review of title insurance rates that involves deciding what data to gather from insurers.
Florida’s costs are higher, surveys say …
A Bankrate survey last year found Florida’s title costs were significantly higher than its neighbors and nearly double those of Iowa, which has a registry system designed to replace title insurance. Some industry and state officials question the accuracy of such comparisons because state systems can vary, but the survey appeared to back up a 2006 report by a state analyst that Florida’s costs were the highest in the region.
Buyer’s average title cost for $200,000 home
Source: Bankrate.com 2011 Closing Costs Survey (includes title insurance and related costs)
… but are they justified?
Industry officials sometimes suggest Florida’s foreclosure and fraud problems are one reason higher rates may be justified, but title insurers reported lower losses in Florida as a percentage of 2012 premiums compared to adjacent states.
State Premiums earned Direct losses paid Percentage
Florida $889.3 million $77.2 million 9 percent
Georgia $211.3 million $20.8 million 10 percent
Alabama $79.8 million $11.9 million 15 percent
Source: American Land Title Association, 2012 annual statement