Title Insurance Services
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Industry Overview
Slightly more than 100 licensed title insurance carriers operate in the US, with combined revenue of $12 billion. Large companies include Fidelity National, LandAmerica Financial, First American, Old Republic, and Stewart Information Services. The industry is highly concentrated.
Competitive Landscape
Home sales and mortgage refinancing are the primary drivers of demand for the title insurance industry. The profitability of individual companies depends on efficient operations because of the large volume of transactions. Large companies benefit from economies of scale in access to large accumulated databases of property records. Small companies can mainly compete by specializing in non-standard titles or in geographical regions that the large companies don't cover.
Products, Operations & Technology
The two types of title insurance policies are for owners and lenders, and may be issued for either residential or commercial properties. Most title companies get the majority of their revenue from the residential real estate market. Although commercial real estate transactions are generally larger, about 80 percent of insurance volume is from residential properties (although accurate data are unavailable). Both home sales and mortgage refinancing trigger the need for a title search and an insurance policy.
Title insurance is issued after a search of various public records to establish who owns the title to a property and to uncover any existing liens, use restrictions, or ownership interest held by any other party. Owner policies protect the owner against defects in the title that existed at the time a property was purchased. Lender policies protect a lender against title defects that existed at the time a loan was made on a property. Owner policies remain in force until a property is sold, lender policies until a loan has been repaid. In a typical residential real estate transaction, the mortgage lender requires that the home buyer pay for title insurance to cover the lender in the amount of the mortgage. The home owner may buy an owner policy as well, but the bulk of policies sold in the residential market are lender policies.
Title insurance is different from other types of insurance in that it indemnifies a holder against past, rather than future, events. Because of this key distinction, insurers can minimize losses by thoroughly searching public records, maps, and other documents. The main expense for title insurance companies is not insurance losses, but the expense of searching records. In recent years, insurance losses amounted to only about 5 percent at national companies. Insurance losses arise through research errors that fail to notice title defects and through "hidden defects" such as fraud and forgery.
Title searches are conducted through local branch offices, approved lawyers, and independent insurance agents. Although public records offices are the focus of title research, in many cases, searches are aided by the establishment of local "title plants" that are repositories of copies of public and other documents, indexed by individual property. The information in these plants is updated daily or weekly by arrangement with public records offices and other sources of information. Title plants are often highly automated and allow searches to be made at low cost, as the need for an examiner to visit public records' offices for each search is eliminated. Local plants may be operated by a single title insurer or shared with other title companies.