California insurance commish sees Title-opoly

It's safe to say title insurers and escrow service providers were celebrating last November when California Insurance Commissioner John Garamendi, a Democrat who had proposed rolling back rates by $1 billion a year, moved on to become lieutenant governor and was succeeded by Silicon Valley entrepreneur Steve Poizner, a business-friendly Republican and first-time officeholder.

After Poizner was elected, he held numerous meetings with title insurance industry representatives and consumer groups to decide what do about Garamendi's proposed rate reductions. In one of his last acts before leaving office, Garamendi submitted his proposal to a state office that reviews proposed regulatory changes to make sure they comply with state law.

Today, you could almost hear an audible gasp from the industry as Poizner announced that he agrees with Garamendi's position that title insurance rates are too high, and that there's a lack of competition in the business. Poizner said he'll proceed with plans to implement a cost-based rate cap, backed by the threat of a $1 billion-a-year rate rollback in 2009 if the industry doesn't supply detailed information on expenses the state wants to use to set rates.

"I want to emphasize that I am a strong believer in the free market and am skeptical of price regulation," Poizner said. "But I am also a realist, and it is clear that where, as here, the market is not functioning properly, strong government action is necessary to protect the public."

Real estate agents, lenders and home builders, Poizner alleged, "steer homeowners to particular title companies. Title companies lavish legal and illegal inducements on those intermediaries to obtain the homeowners' business and then pass those costs on to the unaware homeowner."

Poizner's first public comment on Garamedi's proposed rate cap came after the Office of Administrative Law issued a notice Wednesday saying it would sign off on it. Although the industry seized the opportunity to declare victory, Poizner said the OAL is only raising minor issues of clarification that are easily resolved.

Before Poizner dropped that bomb on the industry today, the California Land Title Association and the Escrow Institute of California had issued press releases that, in retrospect, appear to have been premature declarations of victory.

The CLTA's statement was posted online. In another press release entitled "David Beats Goliath in Victory over Department of Insurance Regulations," the Escrow Institute's president, P.J. Garcia, was quoted as saying: “Today’s announcement by the Office of Administrative Law rejecting an illegal rate setting scheme proposed by the Department of Insurance is a huge victory for the hundreds of small business owners who dared to fight back against an abuse of power by former Commissioner John Garamendi. Garamendi, his General Counsel Gary Cohen and their out-of-state contractor Birny Birnbaum completely failed to understand the fiercely competitive nature of the escrow industry in California."

Birnbaum is the former chief economist for the Texas Department of Insurance whose study of the California title insurance industry was the keystone of Garamendi's arguments for a rate cap.

Title-opoly is the blog authored by consultant Ed Rybczynski.
--Matt Carter, Inman News 

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