United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Housing and 

Community Opportunity, Committee on 

Financial Services, House of 

Representatives

TITLE INSURANCE 

Preliminary Views and 

Issues for Further Study 

Statement of Orice M. Williams, Director 

Financial Markets and Community Investment 

For Release on Delivery

Expected at 2:00 p.m. EDT

Wednesday, April 26, 2006 

 

GAO-06-569T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

April 26, 2006

TITLE INSURANCE

Preliminary Views and Issues for Further 

Highlights of GAO-06-569T, a testimony Study 

before the Subcommittee on Housing and 

Community Opportunity. Committee on 

Financial Services, House of 

Representatives 

Title insurance is a required

element of almost all real estate

purchases and is not an

insignificant cost for consumers. 

However, consumers generally do

not have the knowledge needed to

“shop around” for title insurance 

and usually rely on professionals 

involved in real estate—such as

lenders, real estate agents, and

attorneys—for advice in selecting a 

title insurer. 

At the request of the House 

Financial Services Committee,

GAO currently has work under way 

studying the title insurance 

industry, including pricing,

competition, the size of the market, 

the roles of the various participants 

in the market, and how the industry 

is regulated. On April 24, 2006, 

GAO issued a report on the 

preliminary results of its work to 

date that identifies issues for 

further study. This testimony

discusses that work, and focuses 

on: (1) the reasonableness of cost

structures and agent practices

common to the title insurance

market that are not typical of other

insurance markets; (2) the 

implications of activities identified 

in recent state and federal

investigations that may have

benefited real estate professionals 

rather than consumers; and (3) the

potential need for regulatory 

changes that would affect the way 

that title insurance is sold.

Some cost structures and agent practices that are common to the title

insurance market are not typical of other lines of insurance and merit further 

study. First, the extent to which premium rates reflect underlying costs is 

not always clear. For example, most states do not consider title search and 

examination costs—insurers’ largest expense—to be part of the premium, 

and do not review these costs. Second, while title agents play a key role in 

the underwriting process, the extent to which state insurance regulators 

review agents is not clear. Few states collect information on agents, and 

three states do not license them. Third, the extent to which a competitive

environment that benefits consumers exists within the title insurance market 

is also not clear. Consumers generally lack the knowledge necessary to 

“shop around” for a title insurer and therefore often rely on the advice of real 

estate and mortgage professionals. As a result, title agents normally market

their business to these professionals, creating a form of competition from 

which the benefit to consumers is not always clear. Fourth, real estate

brokers and lenders are increasingly becoming full or part owners of title 

agencies, which may benefit consumers by allowing one-stop shopping, but 

may also create conflicts of interest. Finally, multiple regulators oversee the 

different entities involved in the title insurance industry, but the extent of 

involvement and coordination among these entities is not clear. 

Recent state and federal investigations have identified potentially illegal 

activities—mainly involving alleged kickbacks—that also merit further 

study. The investigations alleged instances of real estate agents, mortgage 

brokers, and lenders receiving referral fees or other inducements in return 

for steering business to title insurers or agents, activities that may have

violated federal or state anti-kickback laws. Participants allegedly used 

several methods to convey the inducements, including captive reinsurance 

agreements, fraudulent business arrangements, and discounted business 

services. For example, investigators identified several “shell” title agencies

created by a title agent and a real estate or mortgage broker that had no 

physical location or employees and did not perform any title business, 

allegedly serving only to obscure referral payments. Insurers and industry 

associations with whom we spoke said that they had begun to address such 

alleged activities but also said that current regulations needed clarification. 

In the past several years, regulators, industry groups, and others have 

suggested changes to the way title insurance is sold, and further study of 

these suggestions could be beneficial. For example, the Department of 

Housing and Urban Development announced in June 2005 that it was 

considering revisions to the regulations implementing the Real Estate 

Settlement Procedures Act. In addition, the National Association of 

Insurance Commissioners is considering changes to model laws for title 

insurers and title agents. Finally, at least one consumer advocate has 

suggested that requiring lenders to pay for the title policies from which they 

benefit might increase competition and ultimately lower consumers’ costs. 

www.gao.gov/cgi-bin/getrpt?GAO-06-569T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Orice M. 

Williams at (202) 512-8678 or 

williamso@gao.gov.
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss our preliminary views and issues 

concerning the title insurance industry. As you are aware, title insurance is

designed to ensure clear ownership of a property when it is sold or 

refinanced, and is a required part of most real estate purchases. According 

to a recent national survey of lenders, title insurance can account for as 

much as one-third of loan origination and closing fees.1

 Recent 

investigations and studies have raised questions about practices and 

competition within the industry, in part because title insurance differs 

markedly from other types of insurance. My remarks today focus on our 

preliminary report, which identifies issues for further study that was 

completed as part of ongoing work in this area for the Chairman of the 

House Financial Services Committee.2 These issues relate to (1) the 

reasonableness of cost structures and agent practices in the title insurance 

market that are not typical of other insurance markets; (2) activities 

identified in recent investigations that may have benefited real estate or 

other professionals rather than consumers; and (3) proposed regulatory 

changes that would affect the way that title insurance is sold.

My remarks are based on a review of studies of the title insurance 

industry, title insurance regulations in selected states, and financial 

information on title insurers and agents. We also had discussions with 

officials from national organizations whose members are involved in the 

marketing or sale of title insurance; the National Association of Insurance 

Commissioners (NAIC); the Department of Housing and Urban 

Development (HUD); several state regulatory officials; title insurers and 

agents; and industry consultants. 

In summary: 

In part because title insurance differs from other lines of insurance, some 

aspects of the industry raise questions that merit further study. First, while 

the amount of premium paid to or retained by title agents—generally to

pay for title search and examination costs and agents’ commissions—is 

 1

Bankrate.com conducted a 2005 mortgage closing cost survey using online information 

when it was available, and contacted title agents as necessary. We did not assess the 

validity of the survey data. 

2

 GAO, Title Insurance: Preliminary Views and Issues for Further Study, GAO-06-568 

(Washington, D.C.: Apr. 24, 2006). 

Page 1 GAO-06-569T 
commonly title insurers’ largest expense, most states do not take these 

costs into account during premium rate reviews. Second, although title 

agents play a key role in the underwriting process, the extent to which 

state insurance regulators review their operations is unclear. Few states 

regularly collect information on title agents’ operations, and three states 

do not license title agents. Third, while the competition among agents for 

their share of the business can be intense, the extent to which a 

competitive environment that benefits consumers exists within the title 

insurance market is also not clear. Consumers generally lack the 

knowledge necessary to “shop around” for a title insurer and often rely on

real estate professionals for referrals that may not always be the most 

cost-effective choices. Fourth, real estate brokers, lenders, and builders 

are increasingly becoming full or partial owners of title agencies in what 

are called “affiliated business arrangements.” These arrangements may 

benefit consumers to some extent, but also create potential conflicts of 

interest. Finally, multiple regulators oversee the different entities involved

in the title insurance industry, but the degree of regulatory involvement 

and coordination among agencies is also not clear. 

In addition, recent state and federal investigations have identified 

potentially illegal activities—primarily involving alleged kickbacks—that 

also merit further study. The investigations alleged instances of real estate

agents, mortgage brokers, lenders, and attorneys receiving referral fees (or 

other inducements) in return for steering business to particular title 

insurers or agents. These activities may have violated federal or state antikickback laws. Participants used several methods to convey the fees or 

inducements, including captive reinsurance agreements, allegedly

fraudulent business arrangements, and free or discounted business 

services. Other investigations alleged that title agents mishandled or 

misappropriated customers’ premium payments, so that customers did not 

get the insurance they paid for.3

Finally, in the past several years, regulators and others have suggested 

changes to regulations that would affect the way title insurance is sold. 

For example, HUD is considering revisions to regulations that implement 

the Real Estate Settlement Procedures Act (RESPA), and NAIC is 

considering changes to the model laws for title insurers and title agents.4

 3

Colorado Division of Insurance Order No. 0-06-089 (Nov. 15, 2005). 

4

Pub. L. No. 93-533, 88 Stat. 1724 (Dec. 22, 1974), as amended, codified at 12 U.S.C. §§ 2601-

2617. 

Page 2 GAO-06-569T 
Further review of the effects and feasibility of such changes will help 

Congress, HUD, and state regulatory agencies in their oversight and 

decision-making processes. 

Title insurance is designed to guarantee clear ownership of a property that 

is being sold. The policy is designed to compensate either the lender 

(through a lender’s policy) or the buyer (through an owner’s policy) up to

the amount of the loan or the purchase price, respectively. Title insurance 

is sold primarily through title agents who check the history of a title by

examining public records. The title policy insures the policyholder against 

any claims that existed at the time of purchase but were not in the public 

record. 

Title insurance premiums are paid only once during a purchase, 

refinancing, or, in some cases, home equity loan transaction. The title 

agent receives a portion of the premium as a fee for the title search and

examination work and its commission. The party responsible for paying 

for the title policies varies by state. In many areas, the seller pays for the 

owner’s policy and the buyer pays for the lender’s policy, but the buyer 

may also pay for both policies—or split some, or all, of the costs with the 

seller. According to a recent nationwide survey, the average cost for 

simultaneously issuing lender’s and owner’s policies on a $180,000 loan 

(plus other associated title costs) was approximately $925, or about 34 

percent of the average total loan origination and closing fees.

5

We identified several important items for further study, including the way

policy premiums are determined, the role played by title agents, the way 

that title insurance is marketed, the growth of affiliated business 

arrangements, and the involvement of and coordination among the 

regulators of the multiple types of entities involved in the marketing and 

sale of title insurance. 

Background 

Certain Aspects of the 

Title Insurance 

Market Merit Further 

Study 

 5

2005 Bankrate.com survey. 

Page 3 GAO-06-569T 
The Extent to Which 

Premium Rates Reflect 

Underlying Costs Is Not 

Always Clear 

For several reasons, the extent to which title insurance premium rates 

reflect insurers’ underlying costs is not always clear. First, the largest cost

for title insurers is not losses from claims—as it is for most types of 

insurers—but expenses related to title searches and agent commissions 

(see fig. 1). However, most state regulators do not consider title search 

expenses to be part of the premium, and do not include them in regulatory

reviews that seek to determine whether premium rates accurately reflect 

insurers’ costs. Second, many insurers provide discounted premiums on 

refinance transactions because the title search covers a relatively short 

period, but the extent of such discounts and their use is unclear. Third, the 

extent to which premium rates increase as loan amounts or purchase 

prices increase is also unclear. Costs for title search and examination 

work do not appear to rise as loan or purchase amounts increase, and

such costs are insurers’ largest expense. If premium rates reflected the 

underlying costs, total premiums could reasonably be expected to increase 

at a relatively slow rate as loan or purchase amounts increased, however, 

it is not clear that they do so. 

Figure 1. Where the Money Goes: 2004 Title Industry Costs as a Percentage of

Premiums Written

21%

71%

Other expensesb

5% 

Loss and loss adjustment expenses

4%

Othera

Paid to or retained by agentsc

Source: GAO analysis of ALTA data.

a

“Other” represents the difference between total premiums written and total expenses, and is not 

meant to be a measure of profitability. b

“Other expenses” includes all other expenses such as 

salaries, rent, and equipment costs incurred by the insurer. c

The “Paid to or retained by agents” 

category includes both affiliated and nonaffiliated agents.

Page 4 GAO-06-569T 
Title agents play a more significant role in the title insurance industry than 

agents do in most other types of insurance, performing most underwriting 

tasks as well as the title search and examination work. However, the 

amount of attention they receive from state regulators is not clear. For 

example, according to data compiled by the American Land Title 

Association (ALTA), while most states require title agents to be licensed, 3

states plus the District of Columbia do not; 18 states and the District of 

Columbia do not require agents to pass a licensing exam.6

 Although NAIC 

has produced model legislation that states can use in their regulatory 

efforts, according to NAIC, as of October 2005 only three states had passed 

the model law or similar legislation. 

For several reasons, the competitiveness of the title insurance market has 

been questioned. First, while consumers pay for title insurance, they

generally do not know how to “shop around” for the best deal and may not 

even know that they can. Instead, they often rely on the advice of a real 

estate or mortgage professional in choosing a title insurer. As a result, title 

insurers and agents normally market their products exclusively to these 

types of professionals, who in some cases may recommend not the least 

expensive or most reputable title insurer or agent but the one that 

represents the professional’s best interests. Second, the title industry is 

highly concentrated. ATLA data show that in 2004 the five largest title 

insurers and their subsidiary companies accounted for over 90 percent of 

the total premiums written. Finally, the low level of losses title insurers 

generally suffer—and large increases in operating revenue in recent 

years—could create the impression of excessive profits, one potential sign

of a lack of competition. 

The Extent of Regulatory 

Focus on Title Agents 

Merits Further Review 

The Extent of Competition 

in the Industry That Could 

Benefit Consumers Is Not 

Clear 

Further Study of the Effect 

of Affiliated Business 

Arrangements Could Be 

Beneficial 

The use of affiliated business arrangements involving title agents and 

others, such as lenders, real estate brokers, or builders has grown over the 

past several years. Within the title insurance industry, the term “affiliated 

business arrangements” generally refers to some level of joint ownership 

among a title insurer, title agent, real estate broker, mortgage broker, 

lender, and builder (see fig. 2). For example, a mortgage lender and a title

agent might form a new jointly owned title agency, or a lender might buy a 

 6

The District of Columbia does not require title agents based there to be licensed, but 

agents based in Maryland or Virginia that conduct business in the District must be licensed 

by their respective states. 

Page 5 GAO-06-569T 
portion of an existing title agency. Such arrangements, which may provide 

consumers with “one-stop shopping” and lower costs, can also can also be 

abused, presenting conflicts of interest when they are used as conduits for 

giving referral fees back to the referring entity or when the profits from 

the title agency are significant to the referring entity. 

Figure 2: Example of an Affiliated Business Arrangement 

A

B $

Referring entity refers 

customers to title agency 

that is part of affiliated 

business arrangement

ownership interest

Title agency profits

and sends portion 

to referring entity

Referring entity

$

A

B

Entity that refers customers

Title agency receiving referred business

Business structure/ownership interest

Path of referred customers

Profit made from referred customers

Customers

$

Source: GAO.

General structure and flow

Title agency

Partially owned by 

the referring entity

The Extent of Involvement 

of and Coordination 

among Regulators of the 

Multiple Entities Involved 

in the Sale of Title 

Insurance Is Worthy of 

Further Study 

Several types of entities besides insurers and their agents are involved in 

the sale of title insurance, and the degree of involvement of and the extent

of coordination among the regulators of these entities appears to vary. 

These entities include real estate brokers and agents, mortgage brokers, 

lenders, and builders, all of which may refer clients to particular agencies

and insurers. These entities are generally overseen by a variety of state 

regulators, including insurance departments, real estate commissions, and 

state banking regulators, that interact to varying degrees. For example, 

one state insurance regulator with whom we spoke told us that the agency

coordinated to some extent with the state real estate commission and at 

the federal level with HUD, but only informally. Another regulator said 

that it had tried to coordinate its efforts with other regulators in the state, 

but that the other regulators had generally not been interested. HUD, 

which is responsible for implementing RESPA, has conducted some 

Page 6 GAO-06-569T 
investigations in conjunction with insurance regulators in some states. 

Some of these investigations of the marketing of title insurance by title 

insurers and agents, real estate brokers, and builders have turned up 

allegedly illegal activities. 

Federal and state investigations have identified two primary types of 

potentially illegal activities in the sale of title insurance, but the extent to

which such activities occur in the title insurance industry is unknown. The 

first involves allegations of kickbacks–that is, fees that title agents or 

insurers may give to home builders, real estate agents and brokers, or 

lenders in return for referrals. Kickbacks are generally illegal. In several 

states, state insurance regulators identified captive reinsurance 

arrangements that title insurers and agents were allegedly using to 

inappropriately compensate others, such as builders or lenders, for 

referrals.7

 State and federal investigators have also alleged the existence of

inappropriate or fraudulent affiliated business arrangements. These 

involve a “shell” title agency that generally has no physical location, 

employees, or assets, and does not actually perform title and settlement 

business. Investigators alleged that the primary purpose of these shell 

companies was to provide kickbacks for business referrals. Investigators 

have also looked at the various types of alleged kickbacks that title agents 

have provided, including gifts, entertainment, business support services, 

training, and printing costs. 

Recent State and 

Federal Investigations 

Have Identified Areas 

of Potential Interest 

Second, investigators have uncovered instances of alleged 

misappropriation or mishandling of customers’ premiums by title agents. 

For example, one licensed title insurance agent who was the owner (or 

partial owner) of more than 10 title agencies allegedly failed to remit 

approximately $500,000 in premiums to the title insurer. As a result, the 

insurer allegedly did not issue 6,400 title policies to consumers who had 

paid for them. 

In response to the investigations, insurers and industry associations say 

they have begun to address some concerns raised by affiliated businesses, 

but that clearer regulations and stronger enforcement are needed. One 

title insurance industry association told us that recent federal and state 

enforcement actions had motivated title insurers to address potential 

 7

Reinsurance is a mechanism that insurance companies routinely use to spread the risk 

associated with insurance policies. Simply put, it is insurance for insurance companies. 

Page 7 GAO-06-569T 
kickbacks and rebates through, for example, increased oversight of title 

agents. In addition, the insurers and associations said that competition 

from companies that break the rules hurt companies that were operating 

legally and that these businesses welcome greater enforcement efforts. 

Several associations also told us that clearer regulations regarding referral

fees and affiliated business arrangements would aid the industry’s 

compliance efforts. Specifically, we were told that regulations need to be

more transparent about the types of discounts and fees that are prohibited 

and the types that are allowed. 

Over the past several years, regulators and others have suggested changes 

to regulations that would affect the way title insurance is sold, and further 

study of the issues raised by these potential changes could be beneficial. 

In 2002, in order to simplify and improve the process of obtaining a home 

mortgage and to reduce settlement costs for consumers, HUD proposed 

revisions to the regulations that implement RESPA. But HUD later 

withdrew the proposal in response to considerable comments from the 

title industry, consumers, and other federal agencies. In June 2005, HUD 

announced that it was again considering revisions to the regulations. In 

addition, NAIC officials told us that the organization was considering 

changes to the model title insurance and agent laws to address current 

issues such as the growth of affiliated business arrangements and to more 

closely mirror RESPA’s provisions on referral fees and sanctions for 

violators. Finally, some consumer advocates have suggested that requiring 

lenders to pay for the title policies from which they benefit might increase 

competition and ultimately lower costs for consumers, because lenders 

could then use their market power to force title insurers to compete for 

business based on price.

The issues identified today raise a number of questions that we plan to 

address as part of our ongoing work. We look forward to the continued 

cooperation of the title industry, state regulators, and HUD as we continue 

this work. 

Proposed Regulatory 

Changes Raise a 

Number of Issues 

Mr. Chairman, this completes my prepared statement. I would be pleased

to answer any questions that you or Members of the Subcommittee may 

have. 

Page 8 GAO-06-569T 
For further information about this testimony, please contact Orice 

Williams on (202) 512-8678 or williamso@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this statement. Individuals making key contributors to this 

testimony include Larry Cluff (Assistant Director), Tania Calhoun, Emily 

Chalmers, Nina Horowitz, Marc Molino, Donald Porteous, Melvin Thomas, 

and Patrick Ward. 

Page 9 GAO-06-569T 

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