Washington, D.C. – The Federal Trade Commission (FTC) issued an administrative complaint late Friday that seeks “to block title insurance provider Fidelity National Financial, Inc.’s $1.2 billion acquisition of Stewart Information Services.” In March of 2018, Consumer Federation of America (CFA) urged the Department of Justice, and later the FTC, to block the merger. CFA applauds the FTC decision, noting that the merger would substantially reduce competition in title insurance, a line of insurance already deeply non-competitive. Fidelity and Stewart are two of the four largest title insurance underwriters in the United States.
Title insurance, required by almost all lenders, protects lenders and, in a separately purchased policy, borrowers, in real estate transactions from financial loss that results from defects in the property’s title. These defects include problems such as document errors, unreported liens, and other people claiming ownership of a property. Consumers pay for both the lender and borrower policies. Since almost all real estate transactions in the United States involve financing from a lender, nearly every real estate transaction in the United States also includes the purchase title insurance policies.
“Title insurance is one of the least understood products in the insurance market, even though it’s part of just about every home sale in America,” said J. Robert Hunter, CFA’s Director of Insurance. “Consumers really need protection in the title insurance market, and we are pleased that the FTC has stepped in.”
As CFA pointed out in its March 2018 letter, Fidelity’s national market share in 2016 was 33.7% and Stewart’s national market share was 11.3%. The market concentration is even more severe in individual states. Using the federal standard for assessing market concentration – the Herfindahl-Hirschman Index (HHI) – CFA calculated that the proposed merger would increase market concentration from a moderately concentrated market level with an HHI score of 2,174 to a highly concentrated market with a 2,936 HHI score.
To highlight the uncompetitiveness and excesses of the nation’s title insurance markets, CFA points to the fact that for each dollar of premium paid for title insurance only five cents are paid out to cover title insurance claims. Most of the rest is kickbacks, according to CFA. In Iowa, where the title insurance market has been reformed, Iowa Title Guaranty charges a flat rate of $110 for a title guaranty. Combined with typical costs for an abstractor and attorney, the cost of title protection in Iowa is about $500 – less than half of what title insurance costs in other states and about one-sixth of what it costs in high-cost states like New York.
“The title insurance market is a non-competitive market even without the proposed merger,” said J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner. “Beyond the concentration problem, the title insurance market is plagued by ‘reverse competition,’ where the ultimate consumer, the homeowner, has essentially no say in which insurer writes the business, and insurer marketing efforts focus on distributing kickbacks to real estate professionals, which drive up prices. The FTC action to stop the merger, coupled with similar action New York should seal the fate of this proposed merger and protect consumers from the problems it would have caused,” Hunter concluded.
According to the FTC, the administrative hearing on the merger, in which the FTC will formally present its case against the merger, is scheduled for February 4, 2020.