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Summary: ‘In the New York State title insurance marketplace there are many underwriter options for a policy but, at the end of the day, it is the financial strength of an underwriter and the title insurance expertise of the company preparing the policy that should be the primary consideration for any consumer!’
Imagine for a second that you are in the process of making what may be the largest financial decision of your life…Buying a residential or commercial property!
Congratulations, this is an exciting time, but it is also anxiety provoking as there are so many decisions that a potential property buyer needs to make (i.e. about 40% of Americans say buying a new home is the most stressful event in modern life – HousingWire)!
These decisions include (among others):
- Location, location, location. If you live someplace like New York City and are going to move your business or family, the potential choices to choose from are many,
- Selecting a real estate agent who is an expert in your area of choice,
- Choosing a mortgage professional who is trusted, or one who has been referred, to work on acquiring a pre-approval that will provide a leg-up in the bidding process (unless you are going the no mortgage contingency route) and,
- Choosing an experienced and specialized real estate attorney (not your brother-in-law who is a personal injury attorney but will ‘do your deal’ for free) so that if you proffer an offer the contract can immediately be formalized and sent out. And remember that when it comes to specific and specialized areas of the law, an expert is usually preferable to someone who dabbles!
The Title Insurance Piece Of The Real Estate-buying Process
First and foremost, what exactly is title insurance and is it really that important?
Well unlike most insurance policies that protect you against some event that may or may not happen in the future (homeowners, health), or something that definitely will happen in the future (life), title insurance is backwards looking and examines things that include the chain of ownership and any outstanding liens that may be on a property.
Ultimately the purpose of the title insurance underwriting process that occurs prior to a policy being issued is to prevent any claim from occurring so that the owner can enjoy their property with complete peace of mind. In other words, title insurance is an extremely important part of any real estate purchase.
But despite how important title insurance is, for many buyers during what is often a prolonged and understandably anxiety provoking process, the first time they will hear about this critical protection for their investment will be at the closing table when their attorney says, ‘Please make out a $____ check for title insurance.’
And while they may not have given this aspect of their purchase any thought, in effect this insurance policy is incredibly important as it will cover them and ensure the fact that they are receiving good, clean and clear title to the property they are buying.
If at some point in the future it’s determined that they, in fact, did not receive the good, clean and clear title that they should have, a claim will be made to their title insurance company.
At this point, very much like the owner of any insurance policy whether life, health, home or something else, the policyholder will be ‘banking’ on the fact that the insurance underwriter they have chosen will have the ability to pay their claim.
All Underwriters Are Not The Same!
Title insurance claims can occur soon after a closing and up to many years after a title insurance policy is purchased. If and when issues arise, some beyond the control of any insurance company, it’s imperative that the underwriter not only be in business but possess the financial wherewithal to withstand and survive. In other words, reserves. Recall that during the financial crisis two underwriters went out of business, leaving the policyholders without coverage. And now, if a defect does exist, it very well may prevent the refinancing or sale of those policyholders property.
Bigger Is Not Always Better, But…
The larger an underwriter is it’s also likely that they will have underwritten a larger amount of title policies leading to larger reserves.
But that said, were an event to occur affecting a portion of policies outstanding, would a given underwriter have the financial strength position to withstand the hit?
After all, for any policyholder regardless of the type of insurance in question, it’s the ability to pay were a claim ever to be made that is the most critical of any consideration!
Title Insurance And The Consumers Right To Choose The Company That They Use!
In New York and every state, the buyers of real estate have the right to choose their title insurance underwriter and/or title insurance agent!
They should listen carefully to the advice and guidance of their trusted advisor, likely the real estate attorney when making the selection.
Given the complexity of a real estate transaction along with the fact that when it comes to an item such as title insurance the consumer may have little expertise in the area, the trusted advisor fills this critical void!
And while ceding responsibility for this decision to an attorney is done all of the time, for a product as important as title insurance that has far-reaching potential implications, the consumer should most certainly educate themselves. In this way, the first time the consumer hears about this protection for their investment is not at the closing table when their attorney says, ‘Make out a $____ check for title insurance’?
When it comes to title insurance the consumer, as discussed in the Hallmark Abstract Service article ‘New York Title Insurance: Always Compare Apples To Apples!’, should always consider…
Points To Ponder When Comparing Two Title Insurance Providers!
- Underwriter and its financial strength,
- Underwriting experience of the abstract company being used,
- Competitive and fair pricing for ancillary services.
An Underwriters Financial Strength (numbers are for illustrative purposes only)
For the consumer, it’s important to closely consider and examine the financial strength footprint of an underwriter, including its reserves. Rating services such as Demotech provide underwriter ratings that include, from lowest to highest, S, A, A’ and A”.
But as the financial crisis taught us when financial products that were rated AAA went belly-up, ratings typically don’t tell an entire story.
Financial strength is important because were many consumers to file claims at the same time that ultimately needed to be paid, as happened during the financial crisis and after, will an underwriter be able to pay them?
In the New York State title insurance marketplace there are many underwriters and agent options for a policy but, at the end of the day, it is the financial strength and underwriting expertise of the underwriter or agent being selected that should be the primary consideration for any consumer!
Consider the two hypothetical underwriters below, one rated A” and one rated A, and let the consumer decide which one they would prefer to be insured by if the need to have a claim paid ever arose.
Title insurance decisions should not be taken lightly because, as mentioned in this articles beginning, ‘Imagine for a second that you are in the process of making the what may be the largest financial decision of your life!‘
Underwriter A (A-rated) Underwriter B (A”-rated)
Total Net Admitted Assets $10,000,000 $1,500,000,000
Known Claim Reserves $220,000 $60,000,000
All Other Reserves $5,700,000 $575,000,000
Hallmark Abstract Service
Hallmark Abstract Service has been recognized for its stellar claims record, charges its clients among the lowest ancillary fees in the industry and primarily underwrites through the Fidelity National Title Group. FNTG is the largest, most respected and financially stable underwriters in the title insurance industry!
Thoughts or questions?
Contact Hallmark Abstract President Mike Haltman at (646) 741-6101 or at mhaltman@hallmarkabstractllc.com.
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