California’s insurance commissioner has decided to delay until 2011 a plan to cap title insurance rates and escrow fees but says he expects the industry to introduce a comprehensive package of reforms that includes rate cuts long before then.
Insurance Commissioner Steve Poizner, while critical of what he sees as a lack of competition in the title insurance industry, has also said a rate cap proposed by his predecessor is not his “first instinct” for remedying the problem.
On Thursday, Poizner announced he had submitted changes to proposed rate regulations put forward by former Insurance Commissioner John Garamendi, which would delay the implementation of a rate cap by one year.
Poizner told Inman News the decision was driven in part by delays in what has been a lengthy approval process. But he said it was also his intention to “create a small window, a short opportunity for the title industry to step up and propose and implement a series of structural reforms that clean up problems in the title industry” before putting a rate cap in place.
“I am actually open to amending these regulations if I see complete structural reform,” Poizner said, including industry support for licensing of sales agents, rate reduction and simplification, increased direct marketing to consumers, and legislation that would end the practice of illegal rebating.
“I am looking for rate reductions this year,” Poizner said.
Craig Page, executive vice president of the California Land Title Association, did not return a call for comment from Inman News.
In a prepared statement, Page said competition in the title insurance industry has driven down prices for consumers in California, citing a Government Accountability Office report showing a 29 percent decline in rates in the last five years.
“The CLTA has presented proposals that more fully empower consumers to shop for title insurance,” Page’s statement said. “For example, the CLTA is promoting new, cutting-edge Internet applications that provide consumers with helpful information when shopping for title insurance. We look forward to continuing our discussions with the Department of Insurance regarding consumer transparency in the title insurance marketplace.”
In an April 30 address to CLTA members, Poizner said too many home buyers rely on their real estate agent, mortgage broker or home builder to choose a title insurance policy. As a result, title insurers market to those who control the customer relationship, rather than customers themselves, Poizner said.
“The relationship-building expenses, some legal, some that have been deemed to be illegal, between the title industry and other players in the real estate transaction, is at the core in my view of the problem,” Poizner said at the time (see Inman News story).
The Escrow Institute of California issued a statement Thursday saying the group will continue to oppose the Department of Insurance’s proposed regulations, which it called “seriously flawed.”
“Despite the Department’s claims to the contrary, the escrow industry in California is fiercely competitive,” the statement said. “In fact, the number of licensed escrow companies in California is at a record-high level. Consumers have more choice and power than ever and are exercising that power.”
Although the industry has questioned the state’s legal authority to set limits on rates, Poizner, like Garamendi, maintains the law gives him that power.
“I’ve had lots of dialogue with executives in the title industry, and my understanding is they do want to restructure their industry,” Poizner said. “I believe the title industry will take advantage of this window to do the right thing. But I believe I do have the regulatory authority (to place upper limits on rates), and if the title industry challenges it, I’m confident we’ll win in court.”
New regulations that would permit the state to set limits on rates based on expense data collected from title insurers were submitted to the Office of Administrative Law by former Insurance Commissioner John Garamendi on Jan. 5.
Absent a legal challenge, title insurers are to begin collecting expense data in 2009, and submitting the data to the state in 2010.
The state plans to use the expense data to set upper rates on title insurance and escrow rates in 2011, using a formula intended to limit excessive profits. Insurers who are unable or unwilling to submit expense data would be subjected to an interim maximum rate in 2010.
The regulations submitted in by Garamendi in January were to have set the process in motion a year earlier, but have not yet been approved by the Office of Administrative Law.
On Feb. 21, the OAL, which is tasked with reviewing regulations proposed by state agencies to ensure they comply with existing laws, said it could not sign off on the regulations because of a host of minor issues, including ambiguous language, defective citations and the omission of required documents (see Inman News story).
Poizner, who was sworn into office just three days after Garamendi submitted the regulations, vowed to see the regulations through the OAL’s approval process. On May 9, the Department of Insurance submitted revisions intended to address the issues raised by the OAL.
On Wednesday, Poizner’s office submitted further revisions pushing back implementation of the regulations for one year, but making no further changes in data collection or reporting requirements.