United States Government Accountability Office

GAO Report to the Chairman, Committee on 

Financial Services, House of 

Representatives 

TITLE INSURANCE

Preliminary Views and 

Issues for Further 

Study 

April 2006 

 

GAO-06-568 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

April 2006

TITLE INSURANCE

Preliminary Views and Issues for Further 

Highlights of GAO-06-568, a report to the Study 

Chairman, 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. Recent state and

federal investigations into title

insurance sales have identified 

practices that may have benefited 

these professionals and title 

insurance providers at the expense 

of consumers. 

At your request, 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 

they are regulated. You asked GAO 

to identify and report on 

preliminary issues for further 

study. In so doing, this report 

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 them. Second, while title agents play a key role in the 

underwriting process, the extent to which state insurance regulators review 

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

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

environment exists within the title insurance market that benefits consumers 

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-06-568.

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.
Contents 

Letter 1

Results in Brief 2

Background 5

Certain Aspects of the Title Insurance Market Merit Further Study 7 

Further Study of the Implications of Recent State and Federal 

Investigations Could Be Beneficial 14 

Potential Regulatory Changes Raise a Number of Issues 17 

Appendix I GAO Contact and Staff Acknowledgments 20 

Abbreviations 

ALTA American Land Title Association 

HUD Department of Housing and Urban Development 

NAIC National Association of Insurance Commissioners 

RESPA Real Estate Settlement Procedures Act 

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Page i GAO-06-568 Title Insurance
United States Government Accountability Office

Washington, DC 20548 

April 24, 2006

The Honorable Michael G. Oxley 

Chairman 

Committee on Financial Services 

House of Representatives 

Dear Mr. Chairman: 

Title insurance guarantees clear ownership of a property that is being sold

and protects both buyers and lenders. Typically it is required in real estate

purchases and is not an insignificant cost for consumers, who may pay not 

only for their own policies but also for the lenders’. However, consumers 

are generally not knowledgeable of the costs and benefits of particular 

title insurance services and usually rely on professionals involved in real

estate, such as lenders, real estate agents, or attorneys, for advice in 

selecting a title insurer.1

 Recent state and federal investigations into title 

insurance sales have identified practices that may have benefited these 

professionals and title insurance providers at the expense of consumers. 

Similarly, a recent study on the competitiveness of the California title 

insurance market concluded that the market was not competitive and that

consumers were being overcharged, provoking a strong and critical 

response from various market participants.2

In response to these concerns we have work under way, at your request, 

on the title insurance market, including pricing, competition, the size of 

the market, and the roles of the various participants in the market and 

how they are regulated. You requested that we report on the preliminary 

results of our work to date and identify issues for further study. This 

report focuses on issues related to: (1) the reasonableness of cost 

structures and agent practices common to the title insurance market that 

 1

Individual states regulate real estate brokerage, establishing licensing and other 

requirements for brokers and agents. Of the two categories of state-licensed real estate 

practitioners, brokers generally manage their own offices, and agents (or salespeople) must 

work for licensed brokers. States generally require brokers to meet more educational 

requirements than agents, have more experience, or both. 

2

B. Birnbaum, Report to the California Insurance Commissioner: An Analysis of 

Competition in the California Title Insurance and Escrow Industry, (Austin, TX: Dec.

2005). 

Page 1 GAO-06-568 Title Insurance
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 or other professionals rather than consumers; and (3) 

proposed regulatory changes that would affect the way in which title 

insurance is sold. 

For this work, we reviewed available studies of the title insurance 

industry. These included the aforementioned study on the California title 

insurance market (as well as numerous criticisms of that study) and a 

recent study conducted on behalf of Fidelity National Title Group.3

 To 

determine what role states play in overseeing the various parties involved

in the title insurance industry, we reviewed title insurance regulations in 

selected states and other publicly available financial information on title 

insurers and agents. To gain a better understanding of how title insurance 

premiums are shared between insurance companies and agents, we 

reviewed data collected by the National Association of Insurance 

Commissioners (NAIC) and the American Land Title Association (ALTA).4

To determine how insurers account for premiums, we also looked at 

financial data filed with the Securities and Exchange Commission. Finally, 

to gain a better understanding of the dynamics of the industry and current 

practices and issues within the title insurance industry, we interviewed 

officials from a variety of national organizations whose members are 

involved in the marketing or sale of title insurance, or related activities; 

NAIC; the Department of Housing and Urban Development (HUD); several 

state regulators, including insurance departments and, in one state, the 

real estate commissioner; title insurers; title agents; and industry 

consultants. We performed our work primarily in Chicago, Illinois, and 

Washington, D.C., between February and April 2006. We performed our 

work in accordance with generally accepted government auditing 

standards. 

The reasonableness of cost structures and certain agent practices that are 

common to the title insurance market—but not to other lines of

insurance—merit further study. First, while state regulations generally

require premium rates to be supported by underlying costs, the extent to

Results in Brief 

 3

G. Vistnes, An Economic Analysis of Competition in the Title Insurance Industry, 

(Washington, D.C.: Mar. 2006).

4

ALTA is a national trade association for title insurers and agents, but its members may also

include attorneys, builders, developers, lenders, and real estate brokers. 

Page 2 GAO-06-568 Title Insurance
which title insurance premium rates reflect such costs is not always clear. 

For example, according to data compiled by ALTA, the amount of 

premium paid to or retained by title agents, generally to pay for title search

and examination costs and agents’ commissions, accounted for 

approximately 71 percent of title insurers’ total premiums written in 2004. 

However, most states do not appear to consider such costs to be part of 

the premium, and thus do not include them in their premium rate reviews. 

Second, although title agents appear to play a very critical role in the 

underwriting process, the extent to which state insurance regulators 

review their operations is unclear. It appears that few states regularly 

collect information on title agents’ operations, and three states plus the 

District of Columbia do not even license title agents. Third, the extent to

which a competitive environment that benefits consumers exists within 

the title insurance market is also not clear. For example, consumers 

generally lack the knowledge necessary to “shop around” for a title insurer 

and therefore often rely on the advice of professionals, such as real estate

agents and lenders. 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, entities such as real 

estate brokers, lenders, and builders are increasingly becoming full or 

partial owners of title agencies in what are called “affiliated business 

arrangements.” Such arrangements may benefit consumers by facilitating 

“one-stop shopping” and lowering costs, but they can also create conflicts 

of interest and can be used in ways that do not benefit consumers. Finally, 

multiple regulators oversee the different entities involved in the title 

insurance industry, including HUD and state insurance, real estate, and 

mortgage regulators, but the degree of their involvement and the extent of

coordination among them are also not clear. Oversight of this, and other 

areas, is essential to ensuring that title insurance markets are functioning 

fairly, and the extent of examination and oversight afforded this industry 

segment reportedly has varied significantly. 

Recent state and federal investigations into the sale of title insurance 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 title insurers or agents, activities that may have violated federal or state 

anti-kickback laws. Participants allegedly used several methods to convey

the fees or inducements, including captive reinsurance agreements, 

allegedly inappropriate or fraudulent business arrangements, and free or 

discounted business services or other things of value. For example, in one 

case, investigators alleged that a title agent created several “shell” title 

Page 3 GAO-06-568 Title Insurance
agencies, some of which had few or no employees and, at least in one 

case, no physical location. Investigators alleged that the agencies did not 

actually perform any business (including settlements) but were created as 

vehicles to provide kickbacks to mortgage brokers for referring business. 

The investigators also alleged that title agents mishandled or 

misappropriated customers’ premium payments, so that customers did not 

get the insurance they paid for.5

 Insurers and industry associations with 

whom we spoke told us that they had taken steps to address alleged illegal

activities, but also said that current regulations did not clearly address 

some aspects of affiliated business relationships and that they would 

support greater enforcement. 

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

suggested several changes to regulations that would affect the way title 

insurance is sold, and further study of these suggestions could be 

beneficial. In 2002, HUD proposed revisions to the regulations that 

implement the Real Estate Settlement Procedures Act (RESPA) that were 

designed to increase competition in the real estate settlement industry. 

The proposed revisions included the development of guaranteed mortgage 

packages and a more binding good faith estimate, both of which could 

affect the pricing and sale of title insurance. Such revisions proved to be 

controversial, and in response to considerable comment from industry 

(including the title industry), consumers, and others, HUD withdrew the 

proposal in 2004. However, HUD announced in June of 2005 that it was 

again considering revisions to the regulations implementing RESPA and 

was seeking input from the industry and others. In addition, NAIC, which

among other things develops model insurance laws that states can adopt,

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

6

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 costs for consumers. Further review of 

the effects of such potential changes on the title industry and the 

feasibility of making such changes could help Congress, HUD, and state 

regulatory agencies in their oversight and decision-making processes. 

 5

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

6

NAIC is a voluntary organization of the chief insurance regulatory officials of the 50 states, 

the District of Columbia, and four U.S. territories. NAIC assists state insurance regulators

by providing guidance, model (or recommended) laws and guidelines, and informationsharing tools. 

Page 4 GAO-06-568 Title Insurance
This is a preliminary report based on information collected to date and 

does not include conclusions or recommendations. 

In any real estate transaction, the buyer and lender providing the mortgage

need a guarantee that the buyer will have clear ownership of the property. 

Title insurance is designed to provide that guarantee by agreeing to 

compensate 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. Lenders’ policies are in force for as long as the original loan 

is still outstanding, but end when the loan is paid off—for instance, 

through a refinancing transaction—while owners’ policies remain in effect 

as long as the purchaser of the policy owns the property. 

Background 

Title insurance is sold primarily through title agents. Before issuing a 

policy, a title agent checks the history of a title by examining public 

records such as deeds, mortgages, wills, divorce decrees, court judgments, 

and tax records. If the title search discovers a problem—such as a tax lien 

that has not been paid—the agent either arranges to resolve the problem, 

decides to provide coverage despite the problem, or excludes it from 

coverage. The title policy insures the policyholder against any claims that 

might have existed at the time of the purchase but were not identified in 

the public record. The title policy does not require that title problems be 

fixed but compensates policyholders if a covered problem arises. Except 

in very limited instances, title insurance does not insure against title 

defects that arise after the date of sale. 

Title searches are generally carried out locally by title agents because the

public records to be searched are usually only available locally. In 

addition, the variety of sources that agents must check has fostered the 

development of privately owned, indexed databases called “title plants.” 

These plants contain copies of the documents obtained through searches 

of public records, indexed by property address, and must be regularly 

updated. Title plants may be owned by insurers, title agents, or a 

combination of entities. In some cases, the owner of a title plant sells 

access to other insurers and agents, charging them to use the service. 

Title insurance premiums are paid only once, at the time of sale or 

refinancing, to the title agent. Agents retain or are paid a portion of the 

premium amount as a fee for conducting the title search and related work,

and for their commission. Agents have a fiduciary duty to account for 

premiums paid to them, and insurers generally have the right to audit the 

agents’ relevant financial records. The party responsible for paying for the

title policies varies by state and can even vary by areas within states. In 

Page 5 GAO-06-568 Title Insurance
many areas, the seller pays for the owner’s policy and the buyer 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. In most cases, the policies are issued 

simultaneously by the same insurer, so that the same title search can be

used for both policies. In 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 

approximately 34 percent of the average total loan origination and closing 

fees.7

In almost all states, title insurance is regulated by state insurance 

departments; in all states, insurers selling title insurance in that state are 

subject to the state’s regulations for their operations within that state. 

State regulators are responsible for enforcing these regulations, primarily 

through the licensing of agents, the approval of insurance rates and 

products, and the examination of insurers’ financial solvency and conduct. 

State regulators typically conduct financial solvency examinations every 3 

to 5 years, while examinations reviewing insurers’ conduct are generally

done in response to specific complaints by consumers or concerns on the 

part of the regulator. 

Insurance regulations can vary across states, creating differences in the 

way insurers are regulated. For example, most states require insurers to 

submit proposed premium rates to the state regulator, and then perform 

some level of review of those rates. In several states, however, the state 

regulator sets the premium rate which all insurers must charge, and in at 

least one state the regulator does not review rates at all. In addition, while 

most states license title insurance agents, several do not. At the federal

level, HUD is responsible for enforcing RESPA, which regulates real estate 

settlement practices. Among other things, RESPA requires that borrowers 

receive certain information regarding closing costs, including title 

insurance fees. RESPA also generally prohibits giving or accepting any

thing of value for the referral of settlement services, such as the referral of

business to a particular title agent. RESPA also allows state insurance 

commissioners to take enforcement actions, under RESPA, against these 

prohibited activities. 

 7

The survey was conducted by Bankrate.com in 2005 by obtaining information online 

where available, and contacting title agents as necessary. We did not assess the validity of 

the data collected in the survey. 

Page 6 GAO-06-568 Title Insurance
Some aspects of the title insurance market that set it apart from other 

lines of insurance merit further study, including:

• the importance of title search costs, rather than losses, in setting 

premium rates; 

• the fact that title insurance agents play a more important role than 

agents for other lines of insurance; 

• the fact that title insurance is generally marketed not to consumers but 

to professionals such as real estate agents or mortgage brokers; 

• the proliferation of affiliated business arrangements between title 

agents and these professionals; and 

• the involvement and coordination among the regulators of multiple 

types of entities involved in the marketing and sale of title insurance. 

Certain Aspects of the 

Title Insurance 

Market Merit Further 

Study 

Extent to Which Premium 

Rates Reflect Underlying 

Costs Not Always Clear 

The extent to which title insurance premium rates reflect insurers’ 

underlying costs is not always clear. Insurance rate regulation, among 

other things, aims to protect consumers by ensuring that premium rates 

accurately reflect insurers’ expected and actual costs, and that they are

not excessive. However, most state regulators do not appear to consider 

title search expenses to be part of the premium. As a result, these 

expenses are not included in regulatory reviews that seek to determine 

whether premium rates accurately reflect insurers’ costs. To complicate 

matters, it also appears that few state regulators collect financial data

from title agents, who generally conduct the title search and examination 

work, so that examining such expenses would be difficult. Further, unlike 

other lines of insurance, the largest costs for title insurers are expenses 

related to title searches and agent commissions, not losses on policy 

claims. In 2004, according to data compiled by ALTA, losses and loss 

adjustment expenses incurred by title insurers as a whole were 

approximately 5 percent of total premiums written, while the amount paid 

to or retained by agents (primarily for work related to title searches and 

examinations, and for agents’ commissions) was approximately 71 percent 

of premiums written. In contrast, property casualty insurers’ losses and 

Page 7 GAO-06-568 Title Insurance
loss adjustment expenses accounted for approximately 73 percent of total 

premiums in 2004.8

A related area worthy of further review is premium rate regulation for 

mortgage refinance transactions. In these cases, a title search most likely 

has been performed relatively recently, and the property is not changing

hands. If the same title insurer was conducting another title search for the 

refinancing, that search would presumably need to cover a shorter period 

of time. Because title search and examination costs are the largest 

component of premium rates for title insurance, the premium rates for 

refinance transactions could reasonably be expected to be lower than for 

home purchases. While it appears that many insurers do provide 

discounted premiums on refinance transactions, the extent of such 

discounts and how widely they are used—that is, whether consumers 

know about them and know how to take advantage of them—is unclear.

Finally, the extent to which premium rates increase as loan amounts or 

purchase prices increase could also usefully be examined. Costs for title 

search and examination work do not appear to rise as loan or purchase 

amounts increase, and the portion of premiums that covers potential 

losses is only about 5 percent of total premiums. If premium rates 

reflected the underlying costs, premium rates could reasonably be 

expected to increase at a relatively slow rate as loan or purchase amounts 

increase. However, this does not always appear to be the case. For 

example, using premium rates posted on the Internet by two state 

regulators with whom we spoke, we found that when the purchase price 

or loan amount doubled from $150,000 to $300,000, the increase in total 

premium for an owner’s policy for selected insurers in the same county 

ranged from approximately 27 to 57 percent. According to an industry 

expert and officials from an industry association, allowing such pricing 

reflects a policy decision by state regulators to have higher-income 

purchasers subsidize the title insurance costs of lower-income purchasers. 

 8

According to industry consultants and analysts, the different loss and expense structure of 

the title insurance industry reflects the fact that title insurance is primarily focused on 

preventing losses through title searches and examinations; meanwhile, most property

casualty insurance is focused on compensating policyholders for losses.

Page 8 GAO-06-568 Title Insurance
Preliminary Questions

• How do title insurers determine premium rates, and how have these rates 

changed in recent years? 

• How does the current rate review structure in most states examine the costs that 

determine title insurance premium rates? 

• What data are collected that could be used to assess the extent to which title 

insurance premium rates reflect the associated costs? 

• To what extent do title insurers offer discounted premium rates on mortgage

refinance transactions? 

Extent of Regulatory 

Focus on Title Agents 

Merits Further Review 

Title agents play a more significant role in the title insurance industry than 

most other types of insurance agents. For most lines of insurance, an 

agent’s role is primarily a marketing role. Title insurance agents not only 

perform this task, but also carry out most underwriting tasks, including 

title search and examination work. In many cases, title agents retain the 

actual insurance policy and, after deducting expenses, remit the title 

insurer’s portion of the premium. As we have seen, amounts paid to or 

retained by title agents for this work in 2004 were around 71 percent of 

total premiums written. 

Despite title agents’ critical role, the amount of attention they receive from 

state regulators is not clear. For example, according to data compiled by

ALTA, while most states require title agents to be licensed, three states 

plus the District of Columbia do not.9

 In addition, also according to the 

same source, 18 states and the District of Columbia do not require agents 

to pass a test to become licensed, and only 20 states require some form of 

continuing education as a prerequisite for title agents. At least one state 

does not regulate title agents. While NAIC has produced model legislation

that states can use as a basis for their own regulation of title agents, 

according to NAIC, as of October 2005, only 3 states had passed the model 

act or similar legislation.10

 9

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

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

by their respective states. 

10NAIC, among other things, develops model insurance laws that states can adopt, and has

developed such laws for both title insurers and agents. NAIC also manages the 

accreditation process for state insurance regulators, requiring them to adopt certain key 

laws in order to take advantage of reciprocity arrangements between states. However, 

states do not need to adopt the model laws in order to be accredited. 

Page 9 GAO-06-568 Title Insurance
The level of oversight of title agents by the state regulators that we spoke 

with for this report varied. For example, one state regulator told us that 

examiners conduct regular but informal visits to the title agents in their 

state but do not track such contacts. Another regulator told us that the 

agency’s review of title agents’ operations focused primarily on financial 

condition, not on compliance with state laws. This regulator also collected

financial data from title agents, but had only recently begun systematically

analyzing that data and questioned its quality. Another regulator told us 

that the agency had recently begun an intense examination of title agents’ 

activities and had taken a number of related enforcement actions. 

The state insurance regulators with whom we spoke expected or required 

insurers to oversee the operations of the title agents writing policies for 

them. One regulator said that the state did not have specific regulations 

requiring insurers to monitor title agents’ operations, but expected such 

monitoring as a matter of course. This regulator also expected insurers to 

resolve any problems the regulator might find with agents’ operations. 

Another state regulator told us that, in light of activities identified in 

recent investigations, their office recently revised its regulations to require 

title insurers to monitor the activities of their agents and hold insurers 

responsible for their agents’ actions.

Preliminary Questions

• To what extent do state insurance regulators review and collect information from 

title agents operating in their state? 

• To what extent are title insurers required to oversee the agents who write 

insurance for them? To what extent have state insurers adopted model title 

insurance and agent laws? 

Extent of Competition in 

the Industry That Could 

Benefit Consumers Is Not 

Clear 

For several reasons, the competitiveness of the title insurance market 

merits further study. First, because the purchase of title insurance is an

infrequent and unfamiliar transaction for most people, consumers 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 

product to such professionals rather than to consumers. Thus, while 

consumers are the ones paying for title insurance, they generally do not 

know how to “shop around” for the best deal, and may not even know that 

they can. Meanwhile, the potential exists for real estate or mortgage 

professionals to recommend—not the least expensive or most reputable 

title insurer or agent—but the one that is most closely aligned with the 

Page 10 GAO-06-568 Title Insurance
professional’s best interests. While RESPA generally prohibits the payment 

of fees for such business referrals, as discussed later in this report, recent 

federal and state investigations have alleged such arrangements. Some 

industry officials pointed out that cost was not the only basis for selecting 

a title insurer because service and speed were also important. 

Second, concentration in the industry has raised further questions about 

its competitiveness. In 2004, according to data compiled by ALTA, the five

largest title insurers and their subsidiary companies accounted for over 90 

percent of the total premiums written. However, according to the annual

reports of several of these companies, a large number of local agents are

used to conduct their business—for example, one company noted in its 

annual report that more than 9,500 agents sold the company’s insurance 

nationwide. And while a recent analysis of competition in the California 

title insurance market concluded that the market was overly concentrated, 

some experts disagree with the study’s methodology and its conclusions.11

Finally, certain aspects of the financial performance of title insurers and 

agents have also caused some to question the competitiveness of the title 

insurance market. For example, as previously discussed, losses on title 

insurance claims accounted for only about 5 percent of total premiums 

written in 2004—a very low percentage compared with most other lines. In

addition, according to data collected by ALTA, total operating revenue for 

the industry as a whole rose approximately 68 percent between 2001 and 

2004, from approximately $9.8 to $16.4 billion. Such conditions could 

create the impression of excessive profits. The same study of competition 

in the California market analyzed the profitability of insurers and agents in 

that market and concluded that they were earning large profits at 

consumers’ expense. 

Preliminary Questions

• To what extent do aspects of competition beneficial to the consumer appear to 

exist in the current title insurance market? 

• What has been the short- and long-term financial performance of title insurers and 

agents, and what accounts for the dramatic increase in total operating revenue? 

 11Birnbaum, Report to the California Insurance Commissioner. 

Page 11 GAO-06-568 Title Insurance
The use of affiliated business arrangements involving title agents and 

others such as lenders, real estate brokers, and builders, appears to have

grown over the past several years, and further study of their effect could 

be beneficial. Within the title insurance industry, the term “affiliated 

business arrangements” generally refers to some level of joint ownership 

among title insurers, title agents, real estate brokers, mortgage brokers, 

lenders, and builders. For example, a mortgage lender and a title agent 

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

portion of a title agency. According to some industry groups, consumers 

can benefit from such arrangements, which may provide convenient, onestop shopping and lower costs. But some consumer groups and state 

insurance regulators point out that such arrangements can also be abused

and could present conflicts of interest. For example, a real estate broker 

that is part owner of a title agency might be seen as unable to provide 

objective advice on which title insurer a consumer should use. In addition,

some see such arrangements as a way to hide referral fees by allowing title 

insurers or agents to mask such fees as a return on ownership interest. As 

detailed later in this report, a number of recent investigations have alleged 

improper use of affiliated business arrangements. 

Further Study of the Effect 

of Affiliated Business 

Arrangements Could Be 

Beneficial 

State regulation of affiliated business arrangements appears to vary. For 

example, according to one industry association, a number of states limit 

the amount of business title insurers and agents can receive from an 

affiliate. In addition, among the state regulators with whom we spoke for 

this review, one did not normally examine such arrangements, but the 

others were beginning to conduct more extensive reviews. RESPA 

regulations require disclosure of affiliated arrangements whenever a 

settlement service provider refers a consumer to a business with which 

the provider has an ownership or other beneficial interest. In addition, 

while owners of affiliated business may be compensated for their 

ownership interest in, for example, a title agent, RESPA regulations 

prohibit compensation beyond that interest. 

As noted above, the extent of information collected regarding the activities 

of title agents appears to be limited. As a result, the extent of information 

collected on affiliated business arrangements involving title agents is likely 

similarly limited. The use of affiliated business arrangements, and the 

potential benefits and concerns regarding their use, make this an issue on 

which further study could be beneficial. 

Page 12 GAO-06-568 Title Insurance
Preliminary Questions

• To what extent is information available on the growth and use of affiliated business 

arrangements in the title insurance industry?

• What are the potential benefits and concerns associated with the use of affiliated

business arrangements? 

• To what extent do state insurance and other regulators review affiliated business 

arrangements?

• How are RESPA disclosure requirements of affiliated business arrangements, and 

the related prohibitions on referral fees, enforced? 

Extent of Involvement 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 the insurers and their agents) are 

involved in the sale of title insurance, and the degree of involvement and 

the extent of coordination among the regulators of these entities appears 

to vary, making this an area meriting further review. Multiple types of 

entities are involved in the marketing of title insurance, including real 

estate brokers and agents, mortgage brokers, lenders, and builders who 

refer clients to the insurers and agents. These entities are generally 

overseen at the state level by different regulators, and the extent of 

regulation related to title insurance sales practices tends to vary across 

states. One state insurance regulator with whom we spoke told us that 

they informally coordinate with the state real estate commission as well as

HUD. Another regulator said that, while they have tried to coordinate their 

efforts with the state regulators of real estate and mortgage brokers, those 

regulators have generally not been interested in such coordination. The 

apparent growth of affiliated business arrangements, which give some of

these entities an ownership interest in others, makes examining the 

strengths of—and need for—such coordination even more important. 

However, some coordinated regulatory efforts have taken place. At the 

federal level, HUD, which is responsible for implementing RESPA, has 

conducted some investigations with state insurance regulators. As we will 

see, 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 in the market. Oversight of this, and other areas, 

is critical to ensure that title insurance markets are functioning fairly. 

Preliminary Questions

• To what extent do regulatory differences among those involved in the sale of title 

insurance create concerns, and to what extent is there regulatory coordination? 

• To what extent do current regulations address the potential concerns about affiliated 

business arrangements? 

• What could state and federal regulators do to improve coordination? 

Page 13 GAO-06-568 Title Insurance
Federal and state investigators have identified two primary types of 

potentially illegal activities associated with the sale of title insurance. The 

first involves providing home-builders, real estate agents, real estate 

brokers, and lenders with potentially unlawful referral fees through 

captive reinsurer agreements, allegedly inappropriate or fraudulent 

business arrangements, and free or discounted business services and other 

items of value. The second involves potential fraud committed by title 

agents who allegedly misappropriate or mishandle customers’ premiums. 

Industry representatives told us that title insurers have begun to address 

these problems but that clearer regulations and more enforcement are 

needed. 

Further Study of the 

Implications of 

Recent State and 

Federal Investigations 

Could Be Beneficial 

Investigations Have 

Alleged Existence of 

Kickback Schemes and 

Fraudulent Activities in the 

Title Insurance Industry 

In several states, state insurance regulators identified captive reinsurance

arrangements that they alleged were being used by title insurers and 

agents to inappropriately compensate others—such as builders or 

lenders—for referrals.12 In such arrangements, a home-builder, real estate 

broker, lender, title insurance company, or some combination of these 

entities forms a reinsurance company that works in conjunction with a 

title insurer. The title insurer agrees to “reinsure” all or part of its business 

with the reinsurer by paying the company a portion of the premium (and 

ostensibly transferring a portion of the risk) for each title transaction. 

Investigators alleged that these reinsurance companies did not actually 

provide reinsurance services in return for this compensation because the 

amount the reinsurers received exceeded the risk they assumed. The 

investigators considered these arrangements a way to pay for referrals, a 

practice that is unlawful under some state anti-kickback and anti-rebating 

laws as well as under RESPA. In one investigation, a reinsurer controlled 

by three title insurance underwriters entered into agreements with 

lenders, real estate brokerages, and builders to pay part of its premiums to 

these entities. State investigators alleged that the reinsurer was transacting

reinsurance business without a required certificate from the state and that

the title insurers were using unfair practices. As part of the settlement, 

state investigators demanded that the reinsurer cease operations in the 

state and that the underwriters end their captive reinsurance 

arrangements with unauthorized reinsurers but also reimburse affected 

 12Reinsurance is a mechanism that insurance companies routinely use to spread risk 

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

Page 14 GAO-06-568 Title Insurance
consumers and pay penalties to the state.13 In New York, regulators and the 

attorney general confirmed that they are currently investigating alleged 

illegal kickbacks in the title insurance industry. 

State and federal investigators have also alleged the existence of 

inappropriate or fraudulent business arrangements among title agencies, 

title insurers, mortgage brokers, attorneys, and real estate brokers that 

were allegedly being used to convey kickbacks and referral fees. Most of 

the investigations we reviewed have examined activities by title agents 

that involve affiliated business arrangements—that is, part or full 

ownership of title agencies by real estate brokers, lenders, home-builders, 

and mortgage brokers. A typical fraudulent business arrangement involves 

a shell title agency that is set up by a title agent but that generally has no 

physical location, employees, or assets, and does not actually perform title 

and settlement business. In cases we examined, regulators alleged their 

primary purpose is to serve as a vehicle to provide kickbacks by being a 

pass-through for payments or preferential treatment given by the title 

agent to real estate agents and brokers, home-builders, attorneys, or 

mortgage brokers for business referrals. Investigations have alleged that 

the arrangements in these cases violate RESPA. For example: 

• In one federal investigation, a title insurer and eight home-builders were 

alleged to have formed shell agencies that performed little or no title work, 

were not independent entities, and benefited financially from referrals.14

• In a multi-state federal investigation, a title agency and its affiliates were 

found to have created “preferred” attorney lists for real estate closings. 

Attorneys were allegedly placed on the list only if they agreed to refer their 

clients to the title agency’s affiliated online title company. As part of the 

settlement, the parties agreed to stop creating “preferred” attorney lists 

and pay monetary penalties to the federal government.15

State and federal investigators have also looked at other types of alleged

kickbacks that title agents have given real estate agents and brokers, and 

attorneys involved in real estate transactions. In investigations we 

 13California Department of Insurance File No. DISP05046621, Accusation, Notice of 

Noncompliance, Demand for Monetary Penalty, and Right to Issue Order to Show Cause 

(July 18, 2005); and Order Restipulation and Waiver (Feb. 21, 2006). 

14HUD Settlement Agreement (Dec. 15, 2005). 

15HUD Settlement Agreement (July 10, 2003). 

Page 15 GAO-06-568 Title Insurance
reviewed, these alleged kickbacks included free or discounted business 

services or other items of value and included gifts, entertainment, business 

support services, training, and printing costs. One state investigation 

identified items such as spa treatments, event tickets, electronics, and 

trips to domestic and foreign vacation locations. Investigators alleged that

these inducements also violated federal and state anti-kickback and antirebating laws.

16

Finally, federal and state investigators have alleged that some title agents 

have misappropriated or mishandled customers’ premiums. For example, 

one licensed title insurance agent, who was an 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. The 

agent also had allegedly mixed funds from premiums with business assets 

and allegedly misappropriated escrow funds for his personal use. The 

investigators, who alleged that the agent had failed to perform his 

fiduciary duty and had violated several state laws, subsequently suspended 

his license and, pending the outcome of hearings, plan to shut down the 

title agencies he owned or controlled.17 Some employees of title agencies 

have also been alleged to have submitted fraudulent receipts, invoices, and

expense reports and then used the reimbursement money for personal 

expenses or to pay for items on behalf of those who referred business to 

them.18

In response to these and other investigations, insurers and industry 

associations say they have addressed some concerns but that clearer 

regulations and stronger enforcement regarding affiliated businesses are 

needed. One title-insurance-industry association told us that some title 

insurers have been motivated by recent federal and state enforcement 

actions to increasingly address kickbacks and rebates through, for 

example, increased oversight of title agents. In addition, they said that 

Some Industry Participants 

Say the Issues Raised by 

the Investigations Are 

Being Addressed, but 

Clearer Regulations Are 

Needed 

 16California Department of Insurance, File Nos. LA 15489-A and LA 15516-A, Accusation, 

Notice of Noncompliance and Hearing, Demand for Monetary Penalty, and Right to Issue 

Order to Show Cause (Feb. 2, 2006). 

17Colorado Division of Insurance Order No. 0-06-089 (Nov. 15, 2005). 

18California Department of Insurance, File No. VA 1012-A, Accusation, Notice of 

Noncompliance and Hearing, Demand for Monetary Penalty, and Right to Issue Order to 

Show Cause, Statement of Charges, and Notice of Hearing (June 10, 2002);Order of 

Restricted License and Payment of Monetary Penalty (2003). 

Page 16 GAO-06-568 Title Insurance
companies operating legally are hurt by competition from those breaking 

the rules and that these businesses welcome greater enforcement efforts. 

Another industry association, however, told us that clearer regulations 

regarding referral fees and affiliated business arrangements would aid the 

industry’s compliance efforts. Specifically, regulations need to be more 

transparent about what types of discounts and fees are prohibited and 

what types are allowed. 

Preliminary Questions

• How widespread are cited infractions associated with the sale of title insurance?

• What are the implications of the findings of state and federal investigations for the title 

insurance industry and consumers? 

• What actions have regulators and title industry participants taken to reduce the extent 

of illegal activities? 

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

suggested changes to regulations that would affect the way title insurance 

is sold. In 2002, in order to simplify and improve the process of obtaining 

home mortgages and to reduce settlement costs for consumers, HUD 

proposed revisions to the regulations implementing RESPA. The proposed 

revisions included the creation of a guaranteed mortgage package that 

included guaranteed prices for loan origination and settlement services 

and a guaranteed interest rate, as well as a revised good faith estimate that 

would have required additional disclosures of settlement fees and limit fee 

increases over the original estimates. In response to considerable 

comment from the title industry, consumers, and other federal agencies, 

HUD withdrew the proposal in 2004. Opponents argued that the revisions 

would have given lenders too much leverage in putting together the 

guaranteed mortgage packages and would have included title insurance—

a product priced in part on risk—in a package that was priced based on 

market forces. HUD announced in June of 2005 that it was again 

considering revisions to the regulations, and has subsequently held a 

number of industry roundtables to get input from industry and others.19

Potential Regulatory 

Changes Raise a 

Number of Issues 

 19Department of Housing and Urban Development, “Real Estate Settlement Procedures Act 

(RESPA); Simplifying and Improving the Process of Obtaining Mortgages to Reduce 

Settlement Costs to Consumers: Notice of Meetings–RESPA Reform Roundtables; Notice,” 

70 Fed. Reg. 37646 (June 29, 2005). 

Page 17 GAO-06-568 Title Insurance
NAIC officials told us that NAIC is considering changes to the model title

insurance act in order to address current issues such as the growth of 

affiliated business arrangements. The model law for title insurers, among 

other things, covers premium rate regulation and title insurers’ oversight 

of title agents that write insurance for them. The model law for title agents 

includes, among other things, agent licensing requirements and 

prohibitions on referral fees. According to NAIC, they will likely change 

the model title insurers act to more closely mirror RESPA’s provisions 

regarding referral fees and available sanctions against violators. In 

addition, they would like to revise the model title agents act by

strengthening the licensing requirements for title agents, because doing so

can discourage the formation of shell agencies as part of an improper 

affiliated business arrangement. 

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 costs for consumers. Lenders could then 

use their market power to force title insurers to compete for lenders’ 

business based on price. Additional regulation, these advocates said, might 

be necessary to require lenders to pass such cost savings on to consumers. 

Some title industry officials have voiced concern with such an approach 

because it would allow the lender to decide which title insurer the buyer 

must use. That is, if the buyer wanted to get the cost savings associated 

with simultaneously issued lender’s and owner’s policies, the buyer would 

have to use the same insurer as the lender. 

Preliminary Questions

• What benefits and concerns might arise from the implementation of potential regulatory

changes? 

• What barriers to implementation exist, and how serious are they? 

• What other regulatory alternatives exist? 

As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from the 

report date. At that time, we will send copies to the Senate Committee on 

Banking, Housing and Urban Affairs; the House Committee on Financial

Services; the Secretary of Housing and Urban Development; and other 

interested parties. We will make copies available to others upon request. 

The report will also be available at no charge on our Web site at 

http://www.gao.gov. 

Page 18 GAO-06-568 Title Insurance
Please contact me at (202) 512-8678 or williamso@gao.gov if you or your 

staff have any questions about this report. Contact points for our Offices 

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

page of this report. Key contributors to this report are listed in appendix I.

Sincerely Yours, 

Orice M. Williams 

Orice M. Williams 

Director, Financial Markets 

 and Community Investment 

Page 19 GAO-06-568 Title Insurance
Appendix I: 

A

GAO Contact and Staff 

cknowledgments 

Page 20 GAO-06-568 

Appendix I: GAO Contact and Staff 

Acknowledgments 

Orice Williams, (202) 512-8678, williamso@gao.gov

In addition to the contact named above, Lawrence Cluff, Assistant 

Director; Tania Calhoun, Emily Chalmers, Nina Horowitz, Marc Molino, 

Donald Porteous, Melvin Thomas, and Patrick Ward made key 

contributions to this report. 

GAO Contact 

Staff 

Acknowledgments 

(250140) Title Insurance
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