March 20, 2009

Attorney General calls for significant reduction in Title Insurance rates for PA consumers; opposes industry request for rate increase

HARRISBURG - Attorney General Tom Corbett today called for sweeping changes in the way title insurance is handled in Pennsylvania, along with the rejection of a recent rate increase request filed with the Pennsylvania Insurance Department and a substantial reduction in future rates.

Corbett said his office has filed formal objections with the Insurance Department, recommending the rejection of a February rate increase request by title insurance companies.  He also called for a full hearing to review the rate structure for title insurance and identify ways that those rates can be reduced to reasonable levels.

"Title insurance is a half-a-billion dollar per year industry in Pennsylvania, funded by every consumer who buys a home or refinances a mortgage, with only a small portion of that amount being used to pay claims and the vast majority being used to pay commissions," Corbett said. "Given the current national economic crisis,  any rate increase by the industry is totally unjustified and insulting to consumers."

 Corbett noted that Pennsylvania consumers paid nearly $585 million in title insurance premiums last year, but the majority of that money - nearly 85%, or $497 million - was paid as commissions to insurance companies, brokers and agents.

"We need to thoroughly review exactly what consumers are getting for the commissions they are paying," Corbett said.  "If these staggering rates were reduced so that they are similar to commissions for other real estate transactions, Pennsylvania consumers could easily save several hundred million dollars per year."

Corbett noted that the rate increase request would eliminate discounts for homeowners who already have title insurance policies and refinancing their homes.  Additionally, the request filed by title insurance companies also included changes that would effectively increase rates for many first-time home buyers, senior citizens and people with disabilities. 

"Many Pennsylvanians, like other homeowners all across the county, are hoping to refinance their loans in the coming months in order to take advantage of lower mortgage interest rates," Corbett said.  "The title insurance industry is hoping to take advantage of this coming wave of refinancing by charging consumers higher prices."

Corbett added that the title insurance companies are even asking for a more than 100% increase in the fee for some documents, further increasing costs for consumers.

One of the items used by the title insurance industry to justify their rate increase request was a 2007 report by the FBI noting increases in suspicious activity reports involving possible mortgage fraud. 

Corbett said the use of this FBI information to justify a rate increase is questionable. He added that the fraud identified in the FBI report is not directed at the quality of home titles, and the FBI report notes that fraud would not be possible without the participation of those involved in the mortgage loan process. 

"To the extent mortgage fraud is a problem for the title insurance industry, we have to sort out to what extent insiders, including the title insurers' own agents, were aware of that fraud before justifying higher prices for consumers."  Corbett said.

Corbett added that the current title insurance business in the Commonwealth is dominated by two out-of-state companies: Fidelity National Title Insurance Company, of Florida, and First American Title Insurance Company, of California.  Together, those two companies and their affiliates handle more than 82% of the title insurance policies written in Pennsylvania.

"It is essential that the Pennsylvania Insurance Department conduct full hearings into title insurance rates in Pennsylvania," Corbett said.  "We firmly believe that an open public review of this issue should result in substantial reductions in these rates and a massive savings for consumers."

The objection was filed on March 10, 2009, and signed by Chief Deputy Attorney General James A. Donahue, III, Deputy Attorney General Jennifer J. Kirk, Deputy Attorney General Joseph S. Betsko and Deputy Attorney General Norman W. Marden of the Attorney General's Antitrust Section.

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