SIC 6361
TITLE INSURANCE



This classification covers establishments primarily engaged in underwriting insurance to protect the owner of real estate, or lenders of money thereon, against loss sustained by reason of any defect of title.

NAICS Code(s)

524127 (Direct Title Insurance Carriers)

524130 (Reinsurance Carriers)

Typical title defects result from liens and encumbrances on a property related to unpaid taxes, land use and zoning restrictions, unsettled contractor disputes for work done on the property, and unrecorded deeds. Title insurance also protects the buyer and lender from fraud perpetrated by the seller.

Title insurers must carefully analyze government records and legal documents to determine the risk of defects for a title on a given parcel of property. The insurer must then underwrite an insurance policy for the buyer that reflects the character of the property title under consideration. Although title searches and warranty deeds have been used to assure title validity in the past, title insurance grew in popularity during the 1980s and early 1990s because it was the most absolute form of protection.

The 1990s were a turbulent period for the industry, which experienced one of its worst years in 1991, when operating losses exceeded $190 million. Business stabilized in 1992 as demand for title insurance increased and many companies reported operating profits for the first time in many years. A large drop, however, in the number of refinancings in 1994, due to higher interest rates, placed more financial pressure on companies that carried over into 1995. Large companies such as Chicago Title and Trust Co. and Lawyers Title Insurance Corp. tried to reverse their decline in profits by instituting staff cutbacks and salary reductions.

To combat downward pressure on profits, title insurance companies tried to increase efficiency by automating, laying off employees, improving services, and increasing lines and regions of service through mergers and acquisitions of smaller companies. In addition, many companies were able to find work in the foreclosure industry, serving law firms and banks, and by offering new real estate services (e.g., loan servicing and appraisals). By the late 1990s the industry had ridden out the serious financial hardship that occurred because of problems and rapid fluctuations in the real estate resale and new construction market.

Between 1986 and 1999 the number of companies providing title insurance in the United States fell from 85 to fewer than 70, and the market became increasingly controlled by several large companies. During this time a number of title companies failed; many of the companies that were left merged so as to pool resources and capital. In late 1999, Fidelity National Finance announced the purchase of number-one-ranked Chicago Title Corp. in a $1.2 billion merger. With combined 1998 revenues of $3.4 billion, this merger created the largest title insurance company in the United States.

The industry was using new developments in computer technology to aid in the underwriting process. Several companies were leading the way with artificial intelligence systems designed to predict the likelihood of default by a mortgage borrower and other automated services. PMI Mortgage Insurance Co. instituted an advanced system employing statistical predictive models to aid in the underwriting process. United Guaranty Residential Insurance Co. collaborated with IBM Corp. to develop an expert system that could render underwriting decisions in less than 10 seconds, and Stewart Title began a similar electronic document preparation service as well as a flood determination company.

Despite their use of computer technology, the title insurance industry was finding it much more difficult to streamline the records search process using computers and automation. Except for major metropolitan areas, most county governments charged with collecting title records were still maintaining them just as they did 100 years ago, according to Chicago Title. Although checking the ownership of a parcel of land was a straightforward process, in order to ensure the validity of title for a buyer, title insurance companies had to also track prior owners of the land and determine if the land had any easements, liens, or other encumbrances. Title insurance companies were limited in that they could be only as efficient as the county in which the records were kept. For most counties, there was only a limited amount of information maintained in a computerized database, and this information was typically indexed in only one way, usually either by seller or buyer. Rarely were property records indexed by legal description, address, or type of document. This significantly hampered the investigation required to under-write a policy of title insurance.

Further Reading

Collins, Brian. "Two Top Mortgage Bankers Developing Title Insurance." National Mortgage News, 29 July 1996.

Darnay, Arsen J., ed. Finance, Insurance, and Real Estate, USA. 3rd ed. Detroit: Gale Research, 1996.

Finkelstein, Brad. "Title Insurer Revenue Jumps 20 percent." National Mortgage News, 9 December 1996.

Frantz, James. "Title Industry Goes Tech." National Real Estate Investor, September 1999.

Jones, John A. "First American Financial Adds More Real Estate Services." Investor's Business Daily, 22 July 1996.

Lawyers Title Insurance Corp. "Lawyers Title Corporation, General Motors Form Joint Venture." 4 March 1996. Available from http://www.ltic.com .

Paire, Jennifer. "It's All about the Ratings." National Real Estate Investor, May 1999.

Richards, Geoffrey. "NREI Presents: Who's Who in the Title Insurance Biz." National Real Estate Investor, May 1997.

——. "Rating Title Firms: A Trend That Keeps Growing." National Real Estate Investor, May 1998.

Sclafane, Susanne. "$1.2B Deal Creates Largest U.S. Title Insurer." National Underwriter, 9 August 1999.

"Title Insurance: An Industry on the Verge of Transformation." Best's Review (Property/Casualty), May 1996.

U.S. Department of Labor. Bureau of Labor Statistics. Occupational Outlook Handbook, 1998-99 ed. Washington, DC: GPO, 1998. Available from http://stats.bls.gov/ocohome.htm .

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