California Insurance Commissioner Steve Poizner has chosen a smart path through the tangled thicket of property title insurance regulation. While the rate caps proposed by his predecessor aren’t Poizner’s preferred solution, he’s said he is prepared to go forward with the plan, unless other more palatable solutions are placed on the table.
Poizner, a former Silicon Valley entrepreneur, is an advocate of free markets, which he described in a recent speech as being characterized by three fundamental elements: plenty of choices for consumers, good information that enables consumers to set a value on those choices, and a regulator or law official that can remove bad actors from the market.
Rate caps are by definition anathema to free markets, but as Poizner himself has said, the insurance commissioner “doesn’t have too many levers” when it comes to regulation of title insurance. California already regulates rates for homeowner’s and auto insurance, and the “lever” of similar regulation may be the best way to encourage meaningful reforms in title insurance, a marketplace in which consumers don’t have good information about the choices that are available.
Title insurers have complained that data collection necessary to implement rate caps could increase the cost of title insurance. That’s a distraction from the issues since data collection is a normal cost of doing business for most financial and insurance companies. As long as rate caps are the only viable solution on the table, data collection will be necessary despite being burdensome. The alternative is not to protest data collection, but to propose other means to improve the marketplace. Otherwise, the mandate to collect data falls equally on all competitors and efficient systems should create a competitive cost advantage.
Californians might well look to Poizner to make some needed noise about RESPA, the severely dysfunctional Real Estate Settlement Procedures Act, as well. Everyone knows the affiliated business arrangements permitted by this federal law are no different from legal-sanctioned kickbacks among industry insiders at best or outright shams at worst, yet year after year, no one takes any meaningful action to slay this poisonous snake in the real estate grass.
The U.S. Department of Housing and Urban Development’s stepped-up enforcement of RESPA is laudable, but a far better solution would be to get rid of affiliated businesses altogether. The federal regulations are confusing and contradictory, and hidden kickbacks are also anathema to free markets. Until this regulatory mess at the federal level is fixed, meaningful reform at the state level will face severe constraints.
Poizner already has said the practice of marketing title insurance through real estate brokers and agents, mortgage lenders and new-home builders rather than directly to home buyers and sellers victimizes title insurers, who have paid “a price” for these intermediary distribution channels. So far, it appears that title insurers prefer to pay that price through affiliated businesses rather than incur the expenses of marketing directly to consumers. All the same, the perspective may win Poizner some friends, or at least open minds, in the industry.
The real solution may come from technology, as Poizner indirectly suggested when he praised a Web site that aims to educate home buyers and sellers about title insurance and help them shop online for title insurance products. Online marketplaces are exactly the sort of new idea that could improve free-market fundamentals and sidestep the burden of rate caps. But even technological innovations can’t work well unless the RESPA loophole is closed and the title companies agree to participate in the online systems.
California’s insurance commissioner is not a mid-level bureaucrat. Rather, he is an independently elected officer of the state whose department can regulate just about everything that’s related to insurance. Indeed, as Poizner has observed, the insurance commissioner’s actions affect every family and business in the state. That makes Poizner, a Republican, a man to watch in California. His predecessor John Garamendi, a Democrat, spring-boarded from the insurance commissioner’s job to become California’s lieutenant governor.
Insurance is an important pocketbook issue for Californians, who elected Poizner in November 2006, despite his pro-business leanings and the electorate’s long memories of bad faith on the part of one of his Republican predecessors in the position. That trust may have resulted in part from missteps on the part of Poizner’s opponent, the state’s then-lieutenant governor, whose campaign focused more on the candidate’s weight-loss program than on the state’s insurance industry.
Still, Poizner now has a golden opportunity to serve Californians and perhaps influence the national agenda as well.
Marcie Geffner is a real estate reporter in Los Angeles.
Copyright 2007 Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.