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Partnership for New York City Highlights Opportunities to Contain Title Insurance Costs

Today, Kathryn Wylde, President & CEO of the Partnership for New York City, delivered the following testimony on recent title insurance regulations  before the  New York State Assembly Standing Committee on Insurance:

“The Partnership for New York City represents the city’s business leaders and largest private sector employers. We work together with government, labor and the nonprofit sector to maintain the city’s position as the pre-eminent global center of commerce, innovation and economic opportunity.

New York State is well established as the national leader when it comes to state regulation, enforcement and oversight of the financial services and insurance industries. The policies we establish here are models for other states and the agencies that carry out this work on our behalf are highly respected as best in class among state regulators. We should consider the efforts of the Department of Financial Services to ensure appropriate oversight of the title insurance industry in that context.

Real estate is a key industry for New York City and title insurers have long provided a service that the industry values. They deliver timely evidence of clear title as a condition of virtually every purchase and loan closing.

At the same time, title insurance is only as good as the public records of ownership, easements and liens that may encumber a property. In New York, the title industry has less than a 5 percent rate of losses, far lower than any other so-called “insurance” sector. One must conclude that our public agencies do a good job of record keeping — for which they receive very modest fees.  Title insurance companies, on the other hand, are compensated at significantly higher rates than may be justified by either the risks they incur or their legitimate expenses, as demonstrated by the results of the DFS investigation.

In 2008, when New York State faced a significant budget deficit, the Partnership for New York City released a proposal that the state should consider self-insuring title records as a way to generate new revenues and reduce costs for affordable housing. Frankly, members of the real estate and banking industries did not support this position out of concern that government agencies would be less responsive than the private sector to the demands of showing up promptly at closings with a completed record. We did not pursue the issue.

But we did advocate for the state to take a close look at industry rates. In New York, a handful of politically connected companies collected revenues of about $1.1 billion in 2016. Last October, after an extended investigation, DFS issued regulations designed to curb lavish marketing expenses that are promotional and protectionist, rather than a necessary cost of doing business. We support the position of DFS and would also suggest a careful and complete review of the appropriateness of other expenditures allowed under the current rate structure, such as lobbying and political contributions that add unnecessarily to costs passed along to consumers and businesses.

Though technology has made title searches simpler and cheaper, premiums have continued to rise, with New York state having some of the highest insurance rates in the country. In New York, the industry has input into the rate-setting process through the recommendations of the Title Insurance Rate Service Association, Inc. but the public relies on DFS to ensure that the costs passed along to customers are reasonable and necessary. Nationally, only four underwriters own 90 percent of the title insurance market. Given the fact that their premiums are essentially mandated impositions on every transaction, the concentration of power is troubling and requires more strenuous oversight than has historically been the case.

We commend the Assembly Insurance Committee for taking a hard look at the industry and its regulatory environment today. We are not calling for socialization of the industry. But we are suggesting that investigations and tightening of controls by the DFS are necessary and appropriate to contain costs and to ensure that the best interests of residents and businesses in the state are protected.”