Capitol Hall Report – August 30, 2016 – Title Insurance and the Free Market

Title Insurance and the Free Market

Free markets are stifled when the government controls price and/or product. American is the world economic leader because of our free market policies. When the government controls price and/or product the free market is destroyed.

The good news is that consumers are the principle benefactors of free market competition. This cornerstone of our economy has guaranteed American prosperity for generations. Unfortunately, the current business climate set by the Texas Legislature prohibits businesses from providing the best possible prices to consumers in the Title Insurance Market.

The Texas economy has become the envy of our nation due in large part to our strict belief that minimal government intervention and the free market guarantee affordable prices for consumers. When it comes to the insurance industry, title insurance stands alone as the only exception. Title Insurance is a policy that is required with every mortgaged property purchase. The insurance company checks the history of the property to ensure that there are no title defects or events that could interfere with the new owner’s claim to ownership of the property. If no problems are found in the property’s past, the insurance company then commits to paying the policy holder in the event that an issue is discovered. The insurance company basically insures the policy holder from ownership issues stemming from the property’s past.

Although the topic of title insurance can be confusing, the main ideas are much simpler to understand. The Texas Department of Insurance completely regulates the title insurance industry, which includes setting a fixed price and a fixed level of coverage for just about every real estate transaction. This means that the insurance companies cannot lower their prices or alter their coverage to attract customers. Consumers have no choice when it comes to price or coverage. There is just one coverage policy, at one high price which is dictated by the government. The ultimate result of these regulations are higher costs for both the businesses and the customers. In fact, Texans currently pay some of the highest title insurance rates and closing costs on real estate transactions in the country. The fixed pricing experiment in the title insurance industry has clearly failed.

A free market economy is better for Texas because it provides the best product for the consumer at the best price. Winners and losers are chosen by those actually purchasing products and making decisions for themselves and their families, instead of the government. In a competitive market, a poor or overpriced product will be pushed out because consumers will decide to buy the better, less expensive product. When the government sets the prices, the companies have no reason to try to save the customer money and consumers cannot shop around for the best deal when it comes to title insurance.

Some advocacy organizations argue that these stringent regulations are necessary to protect our property rights, but the proof is sorely lacking. All across the country, people buy and sell homes, farms, businesses, and other types of property in states with far less regulation of title insurance and as a result, much lower closing costs. In those states, title defects have not been a problem and the people’s property rights are still protected. The same savings can be enjoyed right here in Texas.

Ninety-one percent of Texans want consumer choice in the title insurance market. Texans can shop around for automobile, home, life, renters, and other types of insurance. Texans should have the same opportunity to pay the lowest possible price for title insurance as well. Reforming title insurance regulation in Texas by moving to a system similar to the one used for other types of insurance, called a file-and-use system, for both rates and forms, will open up the title insurance business to competition resulting in more choices for consumers as well as lower prices.

Reducing the high price of commercial title insurance in Texas will lower the cost of doing business here, which will result in a stronger economy and more jobs. Removing government regulation from the marketplace will go a long way toward lowering closing costs for hundreds of thousands of citizens who buy homes here, which means more money left in the pockets of everyday Texans. We plan to support legislation in 2017 to help boost the Texas economy by deregulating title insurance and restoring the freedom of choice back to the citizens of this state where it belongs.