Title Insurance is a peculiar business in many ways - bloated sales cost is just one aspect.
In most regions title insurance companies share the same "back-office" where the chain of title is maintained and errors in the public record are discovered and corrected. In the event of litigation and claims, which cost less than 10% of the insurance premiums collected, the affected companies usually share legal fees as well. In most states, Title policies are standardized. So you have competing companies selling identical service with no way natural way to differentiate themselves.
This means a few companies offer sharply lower prices for the price shopper while most spend huge amounts on their sales force to be the one company mentioned by your builder, real estate sales agent, or lender.
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Using Florida as an example, 30% of the cost of Title Insurance goes to pay for the sales commission.
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Additional marketing expenses are included in the SG&A of the remaining 70%. One could easily guess that 50% of the cost of this insurance is spent on sales cost.
At any meeting of real estate agents the lunch will always be provided free by a title company. A typical home seller might pay $2,000 for Title Insurance, in effect paying $1000 for free lunches, doughnuts, and sales agents driving around in luxury automobiles.
Home Builders need Title Insurance to cover the land they purchase, if for no other reason than to protect the lender providing the construction loan.
Offering free marketing brochures to the builder, as an inducement to obtain his business, pays off in two ways. It can brings in additional sales and secondly when it does, they get to sell a second insurance policy on land where they have already insured the chain of title. Two premiums paid for the same risk!
Larger builders often obtain steep discounts on their title insurance by offering to place a reference to a Title Insurance company on their sales literature.
The most peculiar aspect of the Title Insurance business is that most Title Insurance companies became insolvent during the Depression of the 1930s, leaving property owners and lenders without coverage. |
