Joseph L. Petrelli, ACAS, MAAA, FCA
President, Demotech, Inc.
Arkansas Land Title Association
In 2006 Demotech, Inc. published What We Have Here is A Failure to
Communicate. Our white paper described the critical coverage and loss
adjustment expense differences distinguishing Property and Casualty
insurance from Title insurance. Furthermore, Demotech, Inc. described
how financial reporting requirements failed to capture and summarize
those differences.
This presentation provides additional insight and detail on the failing of
current, or proposed, statistical and financial plans applicable to Title
insurance. The opinion and perspective presented are those of Demotech,
Inc. and do not necessarily represent the opinions or perspectives of our
clients, or the Title underwriters we review and rate.
2
The National Association of Insurance
Commissioners’ Title Agent Statistical
Data Plan
The National Association of Insurance Commissioners (NAIC) has adopted
the Title Agent Statistical Data Plan (“NAIC Plan”) to collect financial data
from title agents nationwide. The NAIC has recommended that each state
implement this NAIC Plan to assist regulators in the oversight of the title
insurance industry.
Part I of this section of the presentation tracks the origins and
development of the NAIC Plan, and explores the purpose of the NAIC Plan.
Part II provides details on the actual data reporting requirements,
including a line by line analysis of the NAIC Plan and overview of the
NAIC’s recommended standards for implementation. In Part III, we
summarize the NAIC Plan’s Implementation guidelines.
NAIC, Title Agent Statistical Data Plan Implementation Guideline, 2011.
(“Implementation Guideline”)
4
Review of the NAIC and the
REGULATION of INSURANCE
ORIGINS of the TITLE INSURANCE
AGENT STATISTICAL REPORT
DEVELOPMENT of the NAIC PLAN
PURPOSE of the NAIC PLAN
5
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Insurance industry is regulated by the states
National Association of Insurance Commissioners is a collective body
Standard-setting, regulatory support organization
Created and governed by the chief insurance regulators of the 50 states
Started in 1871 to coordinate the regulation of insurers operating in
multiple states
The NAIC establishes standards and best-practices for the insurance
industry’s regulators as well as insurers and other regulated entities
http://www.naic.org/index-about.htm
6
Review of the NAIC and the
REGULATION of INSURANCE
ORIGINS of the TITLE INSURANCE
AGENT STATISTICAL REPORT
DEVELOPMENT of the NAIC PLAN
PURPOSE of the NAIC PLAN
7
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2007 Report from U.S. Government Accountability Office (GAO) to U.S.
House Committee on Financial Services: Actions Needed to Improve
Oversight of the Title Industry and Better Protect Consumers. (GAO-07-401)1
Highlights from report:

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Large insurers use local/regional title agents to conduct their business
GAO thought understanding relationship between costs and amounts consumers
pay could help regulators improve their ability to protect consumers
GAO recommended that state regulators take action to:


Improve consumers’ ability to shop for title insurance; AND
Improve oversight of title agents
GAO recommended that regulators collect data on title agents’ operations
NAIC listened to GAO recommendations and formed a task force to evaluate
the viability of a nationwide data call2
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
8
Review of the NAIC and the
REGULATION of INSURANCE
ORIGINS of the TITLE INSURANCE
AGENT STATISTICAL REPORT
DEVELOPMENT of the NAIC PLAN
PURPOSE of the NAIC PLAN
9

Title Insurance Issues Working Group (TIIWG)/Title Insurance Task Force
 Sub-group of the P&C Committee of the NAIC
 Mission was to study issues related to title insurers and title insurance
producers
 2008--TIIWG decided a NAIC Plan for title insurers should attempt to
measure, state by state:
 Profitability of title industry
 Competitiveness of title industry
 Reasonableness of rates and charges
NAIC, Title Insurance (C) Task Force. Conference Call, Sept. 1, 2011. Project History:
Title Agent Statistical Data Plan Implementation Guideline. (“Project History”)
10
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2009—P&C Committee charged TIIWG with completing study on the ability
to develop and implement a system to collect premium and expense data
TIIWG concluded that it could assist states in developing a data call plan
TIIWG became the Title Insurance Task Force and appointed the Title
Statistical Plan Working Group to develop a nationwide statistical plan
NAIC, Title Insurance (C) Task Force. Conference Call, Sept. 1, 2011. Project History:
Title Agent Statistical Data Plan Implementation Guideline. (“Project History”)
11
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Title Statistical Plan Working Group (TSPWG)
 Appointed by the Title Insurance Task Force to develop a nationwide
statistical plan and implementation strategies to assist states in collecting
data3
 TSPWG, with input from The American Land Title Association (ALTA),
insurers, title agents, and software vendors, developed Title Insurance
Agent Statistical Report (“NAIC Plan”).
4
 NAIC Plan was fully adopted by NAIC in Fall 2010
 TSPWG drafted guideline to assist states in implementing the NAIC Plan
 Title Agent Statistical Data Plan Implementation Guideline was adopted
by NAIC in Fall 2011.5
12
Review of the NAIC and the
REGULATION of INSURANCE
ORIGINS of the TITLE INSURANCE
AGENT STATISTICAL REPORT
DEVELOPMENT of the NAIC PLAN
PURPOSE of the NAIC PLAN
13
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“The purpose of the [NAIC plan] is to give information that is more useful to
state regulators about the business of title insurance at the agency level.”*
NAIC recognized that in most jurisdictions performance of the title
insurance business is based on the title agent, not the title underwriter
Annual financial report submitted by title underwriters includes
information regarding premiums and losses, but does not include
information about the title insurance business that is experienced only on
the agent level
Regulators lack valuable information and have an incomplete picture of the
title insurance business
NAIC proposes that jurisdictions need to obtain data from agents
The purpose of the NAIC’s NAIC Plan is to collect information from title
agents, particularly regarding their actual operating costs and their losses
NAIC, Title Agent Statistical Data Plan Implementation
Guideline, 2011. (“Implementation Guideline”)
14
NAIC PLAN - OVERVIEW
NAIC PLAN - DETAILS
TITLE AGENT STATISTICAL DATA PLAN
IMPLEMENTATION GUIDELINE
GOING FORWARD - WHAT WILL THE
STATES DO?
15
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NAIC undertook to design statistical data reporting plan to collect data in
five categories:
 General information and agency information
 Risk assumption
 Income
 Expenses
 Loss and loss mitigation
Goal of plan is to collect enough data to help regulators while not
overburdening title agents
Instructions for:
 Single State Agent
 Multi-State Agent
 Attorney Agent
 Underwriter Direct
16
NAIC PLAN - OVERVIEW
NAIC PLAN - DETAILS
TITLE AGENT STATISTICAL DATA PLAN
IMPLEMENTATION GUIDELINE
GOING FORWARD - WHAT WILL THE
STATES DO?
17
Line
#
Line Description
Single State Agent
Multi-State Agent
Attorney Agent
Underwriter Direct
General Information
1
2
3
4
Enter the four-digit
Enter the four-digit
Enter the four-digit
Enter the four-digit
calendar year for which calendar year for which you calendar year for which calendar year for which you
you are reporting (e.g.,
are reporting (e.g.,
you are reporting (e.g.,
are reporting (e.g.,
reporting in 2012 for 2011, reporting in 2012 for 2011, reporting in 2012 for 2011, reporting in 2012 for 2011,
Calendar year reporting
enter 2011)
enter 2011)
enter 2011)
enter 2011)
Enter the two-letter state
Enter the two-letter state
Enter the two-letter state
Enter the two-letter state
abbreviation of the state
abbreviation of the state
abbreviation of the state
abbreviation of the state
for which you are reporting
for which you are reporting
for which you are reporting
for which you are reporting
(multi-state agencies
(multi-state agencies
(multi-state agencies
(multi-state agencies
should complete a
should complete a
should complete a separate
should complete a separate
separate report for each
separate report for each
report for each state, as
report for each state, as
state, as required by other
state, as required by other
required by other states)
required by other states)
State reporting for
states)
states)
Agent/Agency/Firm
Insert Firm name or
Insert Firm name or
Insert Firm name or
Insert Firm Name
Name
individual agent's name
individual agent's name
individual agent's name
If applicable, provide d/b/a If applicable, provide d/b/a If applicable, provide d/b/a
N/A
a) d/b/a (if applicable)
name for agency
name for agency
name for agency
Federal tax ID/SSN (for
Underwriter direct
Enter Federal Tax ID (or Enter Federal Tax ID (or SSN Enter Federal Tax ID (or
Enter reporting entity's
operations: use NAIC
SSN for individual)
for individual)
SSN for individual)
NAIC Company Code
Company Code)
A full copy of the Title Agent Statistical Stat Plan can be found at:
www.naic.org/documents/committees_c_title_stat_plan_final.xls
18
Line
#
5
Line Description
Single State Agent
If agency revenue is
Parent Company EIN (if reported for taxes through
applicable) (for
a parent or other affiliate,
Underwriter Direct
enter such organization's
Operations: use NAIC
EIN; otherwise indicate
Group Code)
"N/A)
Enter agency's license
number in the state for
License number (for this which you are reporting (if
state)
applicable)
Multi-State Agent
If agency revenue is
reported for taxes through
a parent or other affiliate,
enter such organization's
EIN; otherwise indicate
"N/A)
Enter agency's license
number in the state for
which you are reporting (if
applicable)
Enter the complete
address for the agency's
main office in the state for
Enter the complete
which you are reporting. If
address for the agency's agency does not maintain
main office.
an office in the state for
which you are reporting,
enter the firm's main office
address.
6
7
Address
Contact person
Enter First, Middle Initial Enter First, Middle Initial
and Last name of person and Last name of person
responsible for completing responsible for completing
this report
this report
Attorney Agent
Underwriter Direct
If agency revenue is
reported for taxes through
a parent or other affiliate, Enter reporting entity's
enter such organization's
NAIC Group Code
EIN; otherwise indicate
"N/A)
Enter agency's license
Enter underwriter's license
number in the state for
number in the state for
which you are reporting (if
which you are reporting
applicable)
Enter the complete
address for the direct
operation's main office in
the state for which you are
Enter the complete
reporting. If the direct
address for the agency's
operation does not
main office.
maintain an office in the
state for which you are
reporting, enter the
operation's main office
address.
Enter First, Middle Initial Enter First, Middle Initial
and Last name of person and Last name of person
responsible for completing responsible for completing
this report
this report
19
Line # Line Description
General Information
1
Calendar year reporting
2
State reporting for
3
Agent/Agency/Firm Name
a) d/b/a (if applicable)
4
Federal tax ID/SSN (for Underwriter direct operations: use NAIC Company Code)
Parent Company EIN (if applicable) (for Underwriter Direct Operations: use NAIC Group Code)
5
License number (for this state)
6
Address
7
Contact person
8
Contact phone
9
Contact e-mail
20
Agency Information
10 Independent
11 Affiliated (owned by underwriter)
12 Underwriter direct
Is reporting agent an Affiliated Business
Arrangement (affiliated with real estate
brokerage, mortgage company, etc.)?
(Y)es/(N)o. If Yes, List affiliated business
13 names on Appendix A
15
16
17
14 Agency/Branch Type:
Title & closing (full service)
18
Title only
Closing only
Attorney title
19
State of domicile/residence of Reporting
Entity/Person
Number of states in which Reporting Entity
operates (list all states on Appendix A)
How long has agency been performing
business in this state?
0-5 years
5-10 years
10-15 years
Over 15 years
Percentage of business for this state (by
premium)
a) Percentage of law firm revenue
Number of underwriter appointments,
contracts, or agreements. (List underwriters
on Appendix A)
21
20
21
22
23
No. of employees (total FTE - as of last date of reporting period)
a) No. of FTE on March 31 (end of Q1)
b) No. of FTE on June 30 (end of Q2)
c) No. of FTE on September 30 (end of Q3)
No. of unallocated FTE, as of last date of reporting period (December 31)
Licensed employees
a) No. of licensed FTE on March 31 (end of Q1)
b) No. of licensed FTE on June 30 (end of Q2)
c) No. of licensed FTE on September 30 (end of Q3)
24
No. of licensed, unallocated FTE, as of last date of reporting period (December 31)
List licensed employees (both allocated and unallocated employees) accounted for in
Lines 21(a), (b), (c), and (d) on Appendix A
Unlicensed employees
a) No. of unlicensed FTE on March 31 (end of Q1)
b) No. of unlicensed FTE on June 30 (end of Q2)
c) No. of unlicensed FTE on September 30 (end of Q3)
25
No. of unlicensed, unallocated FTE, as of last date of reporting period (December 31)
22
Risk Assumption
26 Open Title Orders
27 Completed Title Orders in Which Policy Was Issued
28 Total number of policies issued in reporting period
a) Residential Policies
b) Non-residential Policies
29 a) Number of searches billed to 3rd parties
b) Number of searches purchased from 3rd parties
30 Number of non-insurance title products produced
a) Total settlement/escrow/closing transactions
31 conducted
b) Number of line 28 that were sale/purchase
settlement/escrow/closing transactions
Number of settlement/escrow/closing transactions
32 conducted in which a title policy was not issued
23
Income
33
34
35
36
37
38
39
40
Premium written
Premium remitted to underwriters
Settlement/closing/escrow income
Title examination income
Abstract/search income
Income from cancelled orders
Investment income
All other income
41 Total income
24
Expenses
42 Employee compensation
43 a) Contract labor (1099)
b) Temporary labor (non-1099)
44 Payroll taxes
45 Employee Benefits
46 Rent, utilities, and repair
47 Title plant maintenance/subscription expenses
48 Abstract/search expenditures
49 Computer/software
a) Depreciation (if applicable)
50 Business insurance
51
52
53
54
55
56
57
58
59
60
61
Business legal
Accounting
Licenses, taxes, and fees
Marketing/sales
Travel and lodging
Employee education
Bank charges
Charge offs
E&O insurance premiums
Fidelity/Surety bond premiums
Miscellaneous expense
62 Total business expenses
25
Loss, Loss Mitigation, and Underwriting Expenses
63
64
65
66
67
68
69
70
71
72
73
Title losses paid and not reimbursed by underwriter or included in underwriter loss
reserves
a)Title Loss Files Opened
b) Title Loss Files Paid
c) Reimbursements paid to underwriter for title losses
Closing/Escrow losses
a) Number of Closing/Escrow Losses resulting from escrow shortages
b) Total amount of funded shortages
Abstract/search losses (from abstracts/searches sold)
Title loss-related and Closing/Escrow loss-related legal expenses
Deductibles paid
Total loss expenses
Total expenses
Net income before taxes
Federal income tax incurred
Net income
Demotech’s note:
Loss mitigation efforts are not captured.
We suggested that, at a minimum, Schedule A and B counts be reported.
26
NAIC PLAN - OVERVIEW
NAIC PLAN - DETAILS
TITLE AGENT STATISTICAL DATA PLAN
IMPLEMENTATION GUIDELINE
GOING FORWARD - WHAT WILL THE
STATES DO?
27
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Title Statistical Plan Working Group issued an Implementation Guideline for
the new Statistical Data Plan to assist state regulators with implementing
the NAIC Plan
Part A. Introduction

Outlines the background and purpose of the NAIC Plan and provides
general information regarding the NAIC Plan
28
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Part B. Mechanism for Reporting and Collection of Data/Implementation
 Data required has not been previously reported, but should be readily
available to title agents
 Task Force recommends that regulators provide as much notice as
possible before implementing the NAIC Plan so agents may adapt their
systems to collect the required data
 Task Force recommends annual reporting date of June 1 for previous
year’s data
 Recommend that regulators establish web-based reporting system
29
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Part C. Confidentiality of Data
 Task Force recommends that regulators keep individual responses on the
NAIC Plan confidential, but regulators should be allowed to share/publish
aggregate data
Part D. Uses of Data
 Regulators should be careful if they intend to use NAIC Plan to set rates or
analyze justifications of rates and fees because NAIC Plan does not
capture the entire agent experience
 Task Force recognizes that regulators may use data to set rates
30
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Other uses of the data include:
 Fulfillment of GAO recommendations of increased title agent data
collection
 Comparison of relationships of costs to title agents and prices
consumers pay
 Quantitative analysis of differences between title insurance and other
lines of insurance
 Comparison of FTEs in agencies vs. total licensees in a jurisdiction
 Agent premium experience
 Market share analysis
 Marketing expense ratios (compared to market share)
 Premium vs. agency claims loss experience
 Agent experience by locality
 Development of market conduct base line market analyses
31
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Part E. Insurance Department Outreach Efforts
 Task force recommends that regulators engage in outreach and training
initiatives
 Suggest contacting state and national title associations, title insurance
data collection and consulting firms, title insurance underwriters’ state
offices, state departments of insurance, and NAIC
32
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Part F. Suggested Statute Language
 Title Agent Statistical Data Plan.
1)
2)
Every title agency doing business in this state, on or before the last day of May
in each year, shall submit to the commissioner a report, signed and certified
by an owner, officer, partner, or director of the agency, of the specific
information listed in the NAIC Title Insurance Agent Statistical Data Plan.
Information relating to the individual agencies filed with the commissioner
under subsection (1) shall be kept confidential and not subject to public
disclosure. However, nothing in this subsection (2) shall prohibit the
commissioner from publishing data collected in an aggregate form, so as not
to identify individual agencies’ data, or from sharing particular agency data
with other state, federal and international regulatory agencies, with the
National Association of Insurance Commissioners, its affiliates or subsidiaries,
and with state, federal, and international law enforcement authorities,
provided that the recipient agrees to maintain the confidentiality and
privileged status of the information.
33
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Part F. Suggested Statute Language
The commissioner may establish rules, including rules providing statistical
plans, for use by all title insurers and title insurance agents in the collection
and reporting of demographic, revenue, expense and loss experience data in
such form and detail as is necessary to aid him or her in the evaluation of the
title insurance industry at the agency level.
Drafting Note: States that require the data to be submitted electronically should
establish a method of electronic signature verification that is acceptable to the
commissioner.
3)
34
Part G. Suggested Regulation on Reporting Requirements
Drafting note: This is not a model regulation, but a suggested regulation/best practice
for any necessary rules that may need to be promulgated for the implementation of the
NAIC plan. When drafting regulations, take into account local statutes, practices, and
customs and modify this regulation accordingly.

Section 1. Statement of Purpose
This regulation is intended to provide standards and direction for the collection and
reporting of title agent data in accordance with the NAIC’s Title Agent Statistical Data
Plan. The regulation specifies the data required, due dates and time periods for
collection and submission of data, methods of submission, and addresses the
confidentiality of the data submitted.
35
Section 2. Statutory Authority
This regulation is issued based upon the authority granted the commissioner under
(cite any enabling legislation and state law corresponding to market analysis, market
regulation, and/or title insurance regulation).
Section 3. Applicability and Scope
Under this regulation, all operating title insurance agencies and underwriter direct
operations are required to provide yearly reports of their policy issuance, business
income and expense, and loss experience (excluding losses forwarded to or paid by an
underwriter).
Agencies include independent title agencies, affiliated business
arrangement (AfBA) title agencies, attorney firms/title agencies, and underwriter direct
operations.
Drafting note: Types of entities may vary by state
36
Section 4. Definitions
1. Affiliated Business Arrangement (AfBA) – an arrangement in which a settlement
producer, such as a real estate broker, developer, mortgage loan originator, or bank,
or any other individual or entity that is in a position, directly or indirectly, to refer
settlement business to a title entity, also maintains a direct or beneficial ownership
interest in that title entity.
2. Affiliated title agency – a title agency that is owned, either wholly or in part, by a title
insurance company/underwriter, but does not operate as an underwriter direct
agency.
3. Attorney firm/title agency – a title agency that is owned and operated by an attorney
or law firm.
4. Independent title agency – a title agency that is not part of an ownership
arrangement with a real estate settlement producer, or with a title insurance
company/underwriter.
37
Section 4. Definitions (cont.)
Drafting note: Individual states may have different definitions for some of the above
items, or may have more or fewer definitions to include. In addition, definitions under
Real Estate Settlement Procedures Act (RESPA) may vary from those listed above. States
should update, add or delete definitions, as well as add relevant statutory citations as
necessary.
Section 5. Data Required
Incorporate reference to NAIC plan here, rather than including the actual plan (to
accommodate for future amendments to plan).
Section 6. Due Dates/Time Periods for Collection
All reporting entities are required to submit the data referenced in Section 5 of this
regulation on or before May 30 for the immediately preceding reporting period.
38
Section 7. Method of Submission
All reporting entities shall submit the data in a manner prescribed by the commissioner.
Drafting note: States should develop a method for collecting data electronically, either
through a database in which entities can log in to report or through a dedicated email
address, as well as methods of communicating requirements and any changes to the
industry. Such method should be noted in Section 7.
Section 8. Confidentiality and Sharing
Information filed with the commissioner relating to the experience of a particular agent
shall be kept confidential unless the commissioner finds it in the public interest to
disclose the information required of title insurers or title insurance agents under this
section.
39
Section 8. Confidentiality and Sharing (cont.)
In order to assist in the performance of the commissioner’s duties under this chapter, the
commission may share data and information submitted by title insurance entities, including
agencies, insurer direct operations, and title agent attorney firms, pursuant to Title Agent
Statistical Plan data calls and collections, with other state, federal, and international regulatory
agencies, with the National Association of Insurance Commissioners, its affiliates or
subsidiaries, and with state, federal, and international law enforcement authorities, provided
that the recipient agrees to maintain the confidentiality and privileged status of the information.
Additionally, nothing contained herein shall prohibit the commissioner from sharing or
publishing data in an aggregate form with the above parties or any other stakeholder.
Drafting note: States should ensure that the language that they use does not, nor can be
construed as attempting to, limit the sharing or publication of aggregated data, since such
publication may in fact make important disclosures regarding the experience of title agents in a
particular geographic area or business demographic (i.e. by county, state or by agency type.)
Furthermore, states should contemplate whether or not they intend to publish aggregated data
and the extent to which they are prepared to be required to publish or just may publish, etc.
40
Section 9. Enforcement
The commissioner may require that the information provided under this section be
verified by oath of the insurer’s or agent’s president or vice president or secretary, as
applicable. The commissioner may further require that the information required under
this section be subject to an audit conducted by the commissioner. The commissioner
shall have the authority to establish a minimum threshold level at which an audit would
be required.
Noncompliance with this regulation may result, after proper notice and hearing, in the
imposition of any of the sanctions available in the (insert state) statutes pertaining to
the business of insurance or other laws which include the imposition of fines, issuance
of cease and desist orders, and/or suspensions or revocation of license. Among others,
the penalties provided for in (cite appropriate state laws concerning failure to respond,
unfair business practices, etc.) may be applied.
41
Section 10. Severability
If any of the provisions of this regulation shall be held invalid or unenforceable, this
regulation shall be construed as if not containing such provisions and the validity,
legality, and enforceability of the remaining provisions shall not be affected or impaired
in any way.
Section 11. Effective Date
This regulation is effective on [insert date] and applies to all transactions entered into
after the effective date.
42
NAIC PLAN - OVERVIEW
NAIC PLAN - DETAILS
TITLE AGENT STATISTICAL DATA PLAN
IMPLEMENTATION GUIDELINE
GOING FORWARD - WHAT WILL THE
STATES DO?
43
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

New Jersey is moving to adopt a
statistical plan*
Interest for data collection in
Florida*
New York and Pennsylvania
issued their own data calls in
early 2010 (Jeremy Yohe, Creation of a
National Title Agent Data Call, Title News, Vol.
89, No. 6, June 2010, at 8.)

NAIC survey indicated that only
11 states, and Puerto Rico,
intended to participate in the
NAIC Plan:*









*ALTA Advocacy Update (Dec. 28, 2011) reported



Alaska
Arizona
Colorado
Florida
Michigan
Minnesota
New Hampshire
New Jersey
Nevada
Puerto Rico
Tennessee
Washington
44
45
Title insurance coverage is retrospective from the policy’s effective date
and remains in force throughout the term of a loan or the ownership of
real property. Policies are issued once the Title insurance professional
has addressed issues that adversely impact marketability of the title
have been identified, addressed or resolved prior to policy issuance.
In contrast, P&C insurance coverage is prospective, identifying a finite
future period with a definitive expiration date, as the coverage period for
covered incidents that arise during the term of the policy. Events
occurring prior to the effective date are excluded as are those that occur
subsequent to the expiration date.
46
The coverage timeframe differential in conjunction with a
misunderstanding of the nature of Title insurance curative activities are
ignored by existing and proposed reporting requirements.
As a result, the value proposition of Title insurance can not be properly
presented, captured or understood.
The target loss and loss adjustment expense ratio for Title insurance is
zero.
47
Subject to the exclusions from coverage, the exceptions from coverage
contained in Schedule B and the conditions and stipulations, the Title
Underwriter, as of the effective date, insures against loss or damage…
48
In Consideration of the Provisions and Stipulations herein, Property and
Casualty Insurance Company, for the term of Effective Date at 12:01 a.m. to
Expiration Date at 12:01 a.m., does insure…
49
Incident must have occurred
prior to policy period and
remain unresolved prior to
policy
issuance
to
be
considered
Effective Date of Policy
Retrospective
Effective Date of Policy
Title
Property & Casualty
Prospective
Incident must occur within
policy period to be considered
50

Loss adjustment expenses can be considered “allocated” or
“unallocated”. (Defense and Cost Containment or Adjusting and Other)

Allocated loss adjustment expenses are expenses, such as attorneys’ fees
or incident specific legal costs, that are incurred in connection with the
investigation and analysis of a incident that has been reported to the
insurer.

Unallocated loss adjustment expenses are claim department overhead.
They are related to maintaining a claims function but not readily
assignable to a specific incident. Examples include salaries, utilities and
rent.
Unallocated loss adjustment expense is the cornerstone of effective Title
insurance risk mitigation, yet it is not captured in current or proposed
financial or statistical reporting.
In other words, given Title insurance’s retrospective coverage, what the
Title insurance industry characterizes as “curative effort” would be
considered loss adjustment expense in the P&C insurance industry.
51
52

Examination
◦ Legal Description
◦ Conveyances
◦ Execution
◦ Notarization
◦ Evidence of fraud, forgery, competence, etc.
53


Order Entry
◦ Verify property address
◦ Verify owner(s)
◦ Legal description of the property
Run the Chain of Title
◦ Run names and nicknames
◦ Determine if encumbrances exist, is an unallocated loss adjustment
effort but the activity to address them is allocated loss adjustment
expense.
◦ Legal incompetence, conservatorship, bankruptcy, etc.
◦ Impairments in chain of title
◦ Enumerate adverse claims
◦ Interests which affect tenancy
◦ Property tax paid or in arrears, i.e., lien
54

Matters Affecting
◦ Covenants or restrictions
◦ Easements
◦ Rights of first refusal
◦ Judgment or lien
◦ Market requirement to cure
◦ Indemnities
◦ Review prior transaction
◦ Application of statute of limitations
55

Matters Affecting (cont.)
◦ Update for last minute items
◦ Review tax certificate
◦ Reconcile difference with tax discrepancies
◦ Check for outstanding tax sales
◦ Review survey for adverse matters
◦ Verify legal access
◦ Mineral reservations
◦ Geographic posting
56
57

Once an incident is uncovered, through the expenditure of unallocated
loss adjustment expense, the time, effort and expense associated with
resolving or underwriting the incident should be considered allocated
loss adjustment expense.

Effort and expense attributable to resolving a specific incident identified
during the investigation of marketability of Title, i.e. Commitment.

Addressing specific defects, incidents or matters referenced in Schedule
B-1 or B-2. (minimum)
58
59
State
Policies in Sample
Incidents Discovered
and Resolved
Colorado
83
888
Florida
43
248
Louisiana
114
585
North Carolina
270
3,323
All Samples Combined
510
5,044
60
Allocation to Loss Adjustment
Expense
Settlement or closing fee
Abstract or title search
Title examination
Title insurance binder
Document preparation
Notary fees
Attorney's fees
Title insurance premium
Title insurance endorsements
Mortgage certificates
Closing protection coverage
Courier fees
Bank wire fees
Service Costs
100%
100%
100%
100%
100%
100%
100%
80%
80%
100%
100%
100%
100%
61
100%
90%
80%
70%
60%
Health
50%
P&C
Title
40%
30%
20%
10%
0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
62
100%
90%
80%
70%
60%
Health
50%
P&C
Title
40%
30%
20%
10%
0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
* Title estimates are based on one state study completed by Demotech, Inc.
63
Given the retrospective nature of a Title insurance policy, appreciable loss
adjustment expense – unallocated and allocated – must be expended PRIOR
to policy issuance. This effort resolves matters that could otherwise be
presented as claims SUBSEQUENT TO POLICY ISSUANCE!
Unfortunately, current and proposed financial and statistical reporting
requirements are focused on recording results as if a prospective P&C
policy had been issued. Similarly, the NAIC Plan misses the mark by
focusing on financial results rather than risk mitigation efforts.
These reporting formats overstate the Title operating expense ratio and
understates the Title loss adjustment expense ratio, by the same amount.
Under these circumstances, the value proposition of Title insurance can not
be properly evaluated, presented nor understood.
64




Continue to do whatever we can to educate regulators, legislators and
consumers on the fundamentals of title insurance
ALTA
Title 101
Louisiana Land Title Association
When your goal is a loss and loss adjustment expense ratio of zero, what
will regulators do or say if you get there!
For
copies
of
this
presentation,
iwasson@demotech.com or 614-526-3080.
contact
Irisa
Wasson,
65
1.
U.S. Government Accountability Office. April 2007. Title Insurance: Actions Needed to Improve Oversight of the Title
Industry and Better Protect Consumers. Publication No. GAO-07-401.
2.
http://www.gao.gov/products/GAO-07-401; see also NAIC, Title Insurance (C) Task Force. Conference Call, Sept.
1, 2011. Project History: Title Agent Statistical Data Plan Implementation Guideline. (“Project History”).
3.
http://www.naic.org/committees_c_title_stat_plan.htm.
4.
Project History, supra n. 4.
5.
NAIC,
Joint
Executive
(Ex)
Committee/Plenary.
Oct.
http://www.naic.org/meeting1108/summary_joint_ex_plenary.htm.
11,
2011.
Summary
Report.
66