Direct Policy Generation Costs
In 2003, The Title Report, an industry magazine, estimated that administrative and labor costs were $262 per policy. The same report stated that those costs could be reduced to $94 per policy if "commonly used transaction management systems were utilized." One estimate yields only a 1% portion of revenues as the cost of title plant updating and maintenance. The bulk of "costs" for title insurance policy generation is in payments to title agents, sometimes as much as 90% of the policy premium.
What About Claims Losses?
As far as other types of insurance as a comparison, the loss ratio for title insurance is among the very lowest. Because title insurance is against past risks, not future risks like other insurance, loss experience is primarily based on avoiding losses. Compared to about 80% payout for losses on homeowner and auto insurance, the title insurers pay only about 5% in losses. Some are experiencing even lower loss ratios. In 2003, this testimony says that First American Title paid out only 1.2% in losses, represented by $41.7 million in claims on $3.4 billion in premiums.
Depending on the state, testimony states that 70% to 90% of premium dollars go to the title agent doing the search and examination of records for the policy issuance. In many states, while it's not legal for the title insurer to pay commissions to real estate agents, home builders or mortgage brokers, affiliate business relationships have flourished, allowing money to flow to these entities for referrals of business. In some cases, services, such as flyer printing or office space use are perks that cost money but don't show a flow of cash to the recipient referrer. Even as rules have tightened, a great deal of money is spent in entertaining and gathering good will and referrals from real estate, builder and mortgage personnel.
