Washington, D.C. – Tomorrow, Consumer Federation of America’s Director of Insurance, J. Robert Hunter, in testimony before New York Superintendent of Financial Services Bernard Lawsky, will explain that most of the $819 million New Yorkers paid in title insurance premiums in 2012 was to cover the cost of kickbacks and other non-insurance expenses. Such kickbacks and expenses have been allowed to overrun the title insurance system in the state and throughout most of the country.
Hunter, an actuary, former Texas Insurance Commissioner and Federal Insurance Administrator under President’s Ford and Carter, will present a critique of the system and proposals for reform with economist Birny Birnbaum, Executive Director of the Citizens for Economic Justice during the last panel of today’s Financial Services hearing. A copy of Hunter’s prepared testimony can be downloaded here.
Hunter has compiled an extensive analysis of the troubled title market in New York, including the fact that about 15 cents of every premium dollar gets kicked-back to the agents who typically select the title insurance company to be used during a home purchase transaction. Noting that consumers have little understanding of the title insurance product and no realistic opportunity to shop for title insurance due to the pressure and time constraints involved with closing a home purchase, Hunter shows how the extremely concentrated market relies on reverse competition. In this market, title insurance companies have an incentive to increase premiums in order to pay higher kickbacks to the agents who have become the insurance companies’ real customers, even though it is homebuyers who pay the premium. Hunter tabulates the expenses paid by title insurers and agents for costs that should not be passed through to policyholders but borne by shareholders (such as Madison Square Garden Suites, gifts, junkets and other improper expenses).
Hunter will propose a series of options for reform including:
- Requiring that lenders pay for title insurance rather than homebuyers.
- Limiting the amounts that can be paid to agents and the types of expenditures that are allowed.
Additionally, he will call for a state audit of the finances and practices of both the title insurance companies and the agents who place this business.
“New York should consider strong measures to overcome the extreme financial incentives for those in the title insurance business to engage in reverse competition,” concludes Hunter in the testimony to be presented tomorrow afternoon.
Contact: J. Robert Hunter, 703-528-0062