More Than Pushing a Button

Title insurance differs notably from other lines of insurance because most of the events that lead to a claim take place before a policy is issued. As a result, most of the title professional’s efforts are focused on reducing or eliminating the likelihood of claims during the initial underwriting process rather than on loss adjustment after a claim is filed.

Title professionals concentrate on discovering potential issues or defects in a property’s title that could lead to a loss for a homeowner or lender and correcting or resolving them before the policy is issued. The significant work expended in these curative efforts results in most of the title insurance premium being spent on underwriting expense—including curative—and a smaller portion being spent on claims. This approach is unique to title insurance due to the retrospective nature of the product and its exposure to claims.

Title insurance companies invest heavily in upfront title research and curative work that significantly protects property rights and limits ownership challenges down the road.

According to a recent study conducted by ndp | analytics, expert title professionals spend approximately 22 hours to close a standard transaction and 45 hours for more difficult transactions. While all standard transactions require important title clearance efforts prior to closing, difficult transactions require even more substantial work to correct complex title issues prior to closing. In 2023, title insurance companies estimated 36% of transactions were in this more difficult category.

The study—which includes responses from a nationally representative group of 674 title insurance companies and was conducted in the first quarter of 2024— estimates the time needed to research title and close a transaction. It also quantifies the extraordinary efforts title professionals take to fix title issues—typically called curative work—to protect what is often a homeowner’s largest lifetime purchase. While other lines of insurance are unable to predict or prevent events such as floods and fires that can impact a home, title professionals can identify and prevent many of the issues that might interfere with someone’s ownership rights or a lender’s mortgage priority.

“The preventative work done by the title industry is why title insurance has a lower claims rate versus other lines of insurance,” said Diane Tomb, ALTA’s chief executive officer.

According to the National Association of Insurance Commissioners, the title insurance industry’s expense ratio averaged 95% over the past decade, highlighting the costs associated with upfront title searching and clearance. Industry data shows that about 70 cents of every dollar in revenue is spent on staff and acquiring and analyzing public real estate records data, with office expense, compliance and taxes comprising the bulk of the rest.

“Importantly, while inflation has caused the price of most products and services to increase, the cost of title insurance coverage has decreased nearly 5% over the last five years,” Tomb said.

The research showed nearly all title insurance companies conducted curative actions often or very often; 62% of these companies typically performed at least four curative actions per transaction. Additionally, curative work requires more resources than it did five years ago. The biggest changes were cost, transaction volume and compliance. In 2023, approximately 64% of title insurance companies expressed that expenses related to curative work have increased (24% reported costs are much higher than five years ago and 40% said somewhat higher). Over half of companies reported increases in the shares of transactions that require curative actions (55%), the compliance burden (54%) and the complexity of curative work (54%).

“Despite advancements in technology, only 70% of public records at the county level are digitized—accepting electronic documents—and often only the past 10 to 15 years of records are available online, deeming the sole reliance on these electronic records insufficient,” said Don Kennedy, president of ALTA and managing director of First American Title Insurance Co.’s Agency Division. “And while the use of technology to research title issues has dramatically increased, it takes more than a click of a button to conduct a search. The amount of research and corrective action from expert title professionals needed to provide homeowners and lenders with assurance about their title remains significant.”