Claiming that there’s not enough competition in the title insurance industry, California’s Insurance Commissioner is proposing new regulations he says will result in rate reductions of at least 20 percent.
A public hearing on the proposed regulations — which include new reporting requirements and a rate-setting formula — is set for 10 a.m. Aug. 30 in San Francisco.
California’s Insurance Commissioner has had the power to terminate title insurance rates found to be “excessive, inadequate or unfairly discriminatory” since 1973. Commissioner John Garamendi — the Democratic Party nominee for lieutenant governor in the November election — says he needs better tools to determine and set fair rates.
Existing law grants the Insurance Commissioner the authority to collect financial data from title companies to generate statistics that can be used to review and evaluate rate filings.
The new regulations would require title insurers, underwritten title companies and controlled escrow companies to provide detailed annual reports disclosing their written premium, business and other costs. The regulations also propose a detailed formula that would be used to set limits on rates.
The Department of Insurance acknowledges the new regulations “may have a significant statewide adverse economic impact directly affecting business, including the ability of California businesses to compete with businesses in other states.”
However, the commissioner estimates that a 20 percent reduction in title and escrow expenditures could save consumers $800 million, generating new jobs for the state.
The proposed regulations are the outgrowth of a previous investigation and a disputed study alleging a lack of competition in the title insurance industry. The study, issued in December, concluded that there is a lack of competition in title search, title insurance, escrow and closing and other related services in California. The California Land Title Association called the report “bogus” and “not worth the paper it is written on.”
In July, 2005, Garamendi’s office reached a $37.8 million settlement with nine title insurance companies it claimed control roughly 75 percent of the market. The commissioner alleged that the companies paid kickbacks to lenders, real estate brokers and builders through an elaborate reinsurance scheme that he asserted drove up customers’ costs. The companies settled without admitting wrongdoing.
Federal law already requires that borrowers be informed of all closing costs, lender servicing and escrow account practices. But Garamendi says the proposed regulations do not conflict with or duplicate the federal Real Estate Settlement Procedures Act (RESPA), because they do not create any new requirements to disclose information to buyers.
More details about the Aug. 30 hearing, which will be held in the Department of Insurance Hearing Room, 45 Fremont St., San Francisco, are available in this online notice. The notice includes instructions for submitting written comments by mail, fax and e-mail. The text of the proposed regulations are available here.
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