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Pinnacle is proud to serve a number of title insurance providers
with actuarial consulting services. Title insurance can sometimes be an underrecognized
and occasionally unappreciated market, so Pinnacle keeps a close eye on
emerging trends and patterns for our clients.
Our regular Pinnacle APEX Webinar on title insurance contains
updates and critical information. Our 2021 APEX deep dive discussed how
historic the years 2020 and 2021 were for the title industry. This year,
Pinnacle will once again check-in on the market and discuss what’s new and
We’ll share more in an upcoming blog, but we wanted to
provide a little background on title insurance, commonly seen but sometimes not
Every home purchase in the United States requires title
insurance; it is ubiquitous on home closing checklists.
Although title insurance may be seen by most consumers as
just another line item at home closings, this type of insurance offers a great
deal of protection in the event of title defects. While most personal consumers
of mortgages and real estate transactions know that title insurance exists,
perhaps fewer understand what title insurance covers and how the process works.
Title insurance is a
unique form of indemnity coverage that protects homebuyers and lenders from
losses arising from defects in the title to a property that were undiscovered (or not discernible) prior to the real estate
Defects can refer to any dispute or unresolved issue in the
title – the most common being liens, back taxes or conflicting wills.
Title insurance exists for three purposes:
One of the key features of title insurance is the title search: the process of
establishing the ownership history of a piece of property through public
records searches. After a title company prepares a title search report and
issues the policy at closing, the buyer pays a one-time lump sum premium
payment to cover the costs of fixing defects and any claims that may arise in
Title insurance is required by both buyer and lender to
protect their interest in the mortgage loan. It differs from traditional
insurance in that the buyer is not typically the one seeking out the insurance
company. Instead, the title insurance company is typically assigned by the
lender at the time of closing. For this and other reasons, most homeowners are
unaware of which title insurance company they have and are even unaware that
they had a choice.
Policy Types and Comparison to Property/Casualty Insurance
The two main types of title insurance policies are the owner’s policy and the lender’s policy. The owner’s policy
protects the buyer in a real estate transaction, covers the amount of the
purchase price and remains in effect until the property is sold. The lender’s
policy protects the lender, covers the amount of the loan and remains in place
until the mortgage is paid off or refinanced.
There is also a distinction between policies written for a
new home purchase versus for a refinance. A new home purchase requires both an
owner’s and a lender’s policy; however, a refinance only requires a new lender’s
policy, as property does not change hands.
Clearly, title insurance is a very unique product, and it
differs from property/casualty insurance in several ways – the first being the method of risk transfer. Title insurance
is focused on risk prevention, whereas traditional property/casualty insurance
is focused on risk assumption. Title insurance covers past losses incurred
before the policy effective date, while property/casualty insurance covers
future events incurred while the policy is in-force.
In terms of market
structure, title insurance is characterized by mono-line restrictions and
low competition. In fact, in 2020, the top four insurers accounted for over 80%
of direct written premium. On the other hand, property/casualty insurance is
generally characterized by higher competition, and carriers often specialize in
multiple lines of business.
With regard to premium,
title insurance is purchased through a one-time lump sum payment, whereas property/casualty
insurance generally features recurring premium payments. The title premium
amount is calculated as a standard rate per $1,000 of the home purchase price,
and that rate varies by state. For property/casualty insurance, the premium is
determined through individual risk classification. Also, while a title
insurance policy is in effect until the property is sold or the mortgage is
paid, a property/casualty policy typically expires after six or 12 months.
What is also significant, and unique to title insurance
relative to property/casualty, is that criteria such as insurability and other characteristics
of the homebuyer are not considered in determining title insurance
premium, unlike how premium is determined with homeowners or auto insurance.
It’s important to truly understand these fundamental differences
between coverages. Their implications for pricing, reserving and even for
investment activities such as mergers and acquisitions are essential to ensure
your actuarial provider is providing the very best work product.
And we have so much more! Please don’t forget to join us to hear
more about current state of the market on our upcoming Pinnacle APEX Webinar.
Art Randolph is a principal and consulting actuary with Pinnacle Actuarial Resources, managing the firm’s Atlanta, Georgia, office. He has been in the insurance industry since 1998 and has been consulting since 2001. Art’s consulting career has focused on medical professional liability (MPL), homeowners, commercial property, workers’ compensation, commercial and personal automobile, general liability, commercial multiple peril and title exposures. Art is a member of the American Academy of Actuaries (AAA) P/C Extreme Events and Property Lines Committee, the AAA Workers’ Compensation Committee, the Casualty Actuarial Society (CAS) Finance Committee and the Alabama Actuarial Council. Art is actively involved with Association of Government Risk Pools (AGRiP), California Association of Joint Powers Authorities (CAJPA), Captive Insurance Companies Association (CICA), CPCU Society, Florida Chamber of Commerce, Insurance Accounting and Systems Association (IASA), International Association of Black Actuaries (IABA) and MPL Association.
Chris Schubert is a consulting actuary with Pinnacle in the Atlanta, Georgia, office. He has worked in the property/casualty insurance industry since 2011. Chris has considerable experience in assignments involving loss reserving, rate filings, funding studies, loss cost projections, captive feasibility studies, captive application reviews and financial examinations. He has contributed on loss reserve analyses involving personal property insurers writing homeowners and dwelling fire coverage, as well as multi-line companies writing medical professional liability, lawyers professional liability, workers’ compensation, commercial property, auto liability and auto physical damage coverage, among others.
Meade is an associate actuary with Pinnacle in the Atlanta, Georgia, office. He has worked in the property/casualty insurance industry
since 2010. Matt has considerable experience in assignments involving loss reserving, captive renewals, funding studies, loss cost projections and risk margin calculations. He has
particular expertise in providing loss reserve analyses for personal property insurers writing homeowners and dwelling fire coverage. He also develops loss
reserve analyses and rate renewals for captive insurance groups and provides loss picks for prospective members.
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