Changes in Title Insurance
As Fidelity completes its acquisition of Stewart Title, the lack of competition in this growing multibillion dollar real estate industry seems increasingly impractical and speaks to an industry that is in need of expansion.
A robust economy and an employment rate nearing historic levels have driven the real estate market to astronomical heights. With the residential sales market upward of $100 million and single commercial transactions over $2 billion being more common in recent years the world of title insurance has changed. This begs the question as to the need to spread risk. Until recently, almost 90% of that risk has been underwritten by four companies.
Beyond the Big Four
Recently, one of the “big four” title insurers announced plans to purchase one of their competitors – essentially leaving three companies to assume billions of dollars of risk annually. As Fidelity completes its acquisition of Stewart Title the lack of competition in this growing multibillion dollar industry seems increasingly impractical and speaks to an industry that is in need of expansion. Another key concern is the ability to accommodate a client’s needs no matter the deal size.
The merger will take the five companies within the same “family” and create two big players and one steady company as industry giants. As the industry shrinks there is a risk of one of the three title companies reaching or exceeding their capacity. As a result of the deals being monetarily larger, clients are looking to reinsurance as an option to spread the risk across different balance sheets. The lack of title options creates opportunity for new underwriters. Instead of spreading the risk amongst other non-related companies the giants re-insure through their “family” structures keeping the balance sheets spread amongst their own wholly-owned companies.
Recently, the industry underwent a comprehensive review by one of the largest law firms in the country, Stroock, Stroock, and Lavan, who analyzed the capacity available to its clients in the commercial marketplace and noted a significant industry consolidation. However, despite the shrinking number of firms offering title insurance capacity, Strook noted that new reinsurance structures are now providing additional capacity to the ever expanding commercial real estate business.1
What this means is the number of large commercial title insurers have fallen drastically in the last 20 years – in 2001, approximately 90% of the industry market share was controlled by 9 title insurance underwriters, while today 87% of the US market is controlled by 3 title insurers (after the Stewart acquisition).
Looking Forward
It’s an exciting time in title insurance, where in the past you had little opportunity for a new underwriter to gain ground and now the market is demanding not only a new underwriter but a new way of tackling the industry and ensuring client’s needs come first.
Jason Gordon is president of AmTrust Title and has more than 15 years of experience in the industry. The views expressed here are the author’s own.