Thursday, March 06, 2008

query: is outsourcing title insurance illegal

That's an interesting question. As a reminder, I am not an attorney and this is my opinion as a title agent and one who has been in the real estate industry for over 30 years.

I do not think outsourcing core services of title insurance is illegal in and of itself. The possible illegalities reside in issues like duplicative effort and whether or not settlement service providers are truly performing the core services for which they are being paid.

Outsourcing is a bone of contention in our industry for two reasons.

Outsourcing is part of the structure that supports sham title agencies. Underwriters use outsourcing to keep their costs down so they can provide cheap or free services to agents who are unwilling or incapable of performing core services in a title insurance transaction.

In addition, outsourcing, especially when the work is outsourced to a remote location, guts the expert examination which traditonally was the core of a title insurance purchase and reduces the title insurance coverage to the level of a casualty product.

Let's compare it to a medical examination and surgery. In the US, we have a regulatory structure and litigous atmosphere which has raised the costs of care beyond what some are willing or able to pay. A terrific alternative has been made available in India. Consumers of medical services can travel to India and obtain treatment that is top notch and the cost is less than they would have incurred in the US. In that case, it's not really outsourcing, but I'm trying to use an example of a consumer reaping a benefit from the use of expert services from a remote location.

Now, let's say instead of going to the medical expert in India, the consumer used an on-line system like WebMD to diagnose their illness or maybe sent a blood or stool sample to a remote service and received a diagnosis that came with an insurance policy which said medical expenses would be paid if they missed something. You'd think that consumer was crazy because they most certainly should have seen an expert medical professional in person, right?

This is the medical equivalent of title insurance policies which do not include expert examination. Consumers have a hard time understanding what title examiners do, but we are diagnosing the condition of title. We're looking for problems. Finding and curing problems before the insurance is issued is what we are being paid to do. The actual policy is just a safety net in case someone made a mistake. It doesn't replace the examination.

I hope this helps with understanding the issue. I am taking a guess that the query might be a search for the truth. I respect that those who are performing the outsourced services are doing what they have been contracted to do. I wish you well. If you'd like to comment and have a dialogue I would welcome the opportunity.

1 comment:

Wine Dog said...

Little brother, who ain't so little, is an attorney. He maintains that once the tort system is removed from the health care system, we can finally get to some sort of decent health care in this country. He's actually been treated in countries with nationalized health care. He says the weirdest thing is once everything is all done they bid you adieu. They don't strong arm you for your deductible or your copay or anything else. They take care of you and send you on your way. To those who say the care is substandard to ours, he points out that some of the greatest advances in medicine occurred overseas. We really need to get the tort system out of health care here. And, of course the for profit aspect. It's a basic human need that should be sans profiteering.

As far as outsourcing title work, certain aspects of it can be handled remotely, but at the end of the day, each city, county and state has their own nuances. Quirks that can't be engineered in Bangalore or any of the other title production centers that are located throughout the country. In California there are two title production centers for FATCO. One in Roseville and one in Ranch Cucumonga. These areas have lower base salaries than Los Angeles and the Bay Area. Unfortunately, a lot of staff hasn't ever been to the places they write title on and don't know the funky little twists and turns. San Francisco's tax situation makes my eyes bleed weekly and I sit in an office in SF. If the examiner is not well versed in the area they are searching, the title company is upping their reserves to pay for the losses. FATCO added $137 mil to theirs in the fourth quarter. I don't remember LandAm's number, but it was high. With increased claims, the cost of outsourcing becoming less attractive (as reported over on PBE a couple of days ago) I think outsourcing is going to go away in the next five to ten years. Sadly, there's no one coming up behind me. This may be a lost art.