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Fintech makes presence felt in title insurance industry

States Title, Inc. becomes first tech-based title insurance company allowed to operate in CA.

Startup title insurer States Title, Inc. recently received approval to operate in California, reports Bloomberg. The approval marks the first time regulators gave a tech-focused title insurer the go-ahead to work in the Golden State.
The news is a sign of a change to the $15 billion title insurance company, which up until now just four companies dominated. OneTitle National Guaranty Co. and Spruce Holdings, Inc. are also among the newcomers who have loosened up the stranglehold a handful of companies have had on the complex and regulated title insurance industry.
“The industry is ripe for more technology usage,” Piper Jaffray & Co. analyst Jason Deleeuw told Bloomberg. “That’s a common theme across real estate and mortgage.”
Customers typically use title insurance in both residential and commercial real estate transactions. Since commercial real estate transactions usually involve more money and the financial transactions are so detailed, the title tends to be more complicated. Title insurance plays a crucial role anytime a commercial real estate property is purchased and sold. While title insurance is seen as more of a formality in residential real estate, it’s vital during the due diligence phase and closing process in commercial real estate deals. The high stakes in a CRE transaction ensure all parties—the buyer, seller and lenders want the title insurance issuance to go on without any problems.
Title companies and agents look through public records to help buyers and lenders alike to avert risks such as liens and ownership disputes. According to California Insurance Commissioner Dave Jones, adding more companies to the title insurance ecosystem as well as new technology will help bring down costs for consumers. “Title-insurance transactions are often labor intensive and suffer from delays,” Jones said in a statement. “States Title uses a digital platform which is data-driven and automates the process.”
Currently, Fidelity National Financial, Inc. and First American Financial Corp. are the largest title insurers. Stewart International Services Corp. and Old Republic International Corp are not too far behind, according to the American Land Title Association (ALTA). ALTA’s data showed title insurers generated approximately $15 billion in total premiums in 2017.
As more title insurance newcomers receive approval from state regulators, the old guard faces several challenges. OneTitle now operates in New York and New Jersey while Spruce recently states it’s worked in 36 states. OneTitle issues polices and Spruce acts as a title agent, but both companies believe the industry counts on outdated technology. Others argue complex ties between agents and insurers drive the market more than a desire to accommodate customers’ changing preferences.
“There really had been very little technological innovation in the space,” Daniel Price, co-founder and chief executive officer of OneTitle, told Bloomberg. “Part of the reason that relationships have been key is that there’s been no differentiation.”
New York regulators have been more critical of the close relationships between agents and insurers. Last year they looked to put a stop to companies passing, “marketing costs” to customers like meals and entertainment they used to win business. Industry groups fought this in court and won an annulment of the New York rules. However, New York’s Department of Financial Services plans to appeal. Meanwhile, some startups have opted to work with current title insurers rather than compete with them. Spruce works with underwriters like Fidelity and WFG National Title for example. The company uses technology to make the make the process more efficient and entice both lenders and real estate companies. “Broader trends in the industry are going to necessitate title companies be able to keep up and able to meet these mortgage originators or real estate companies where they’re trying to guide the consumer experience,” Spruce CEO and co-founder Patrick Burns told Bloomberg.
Companies like One Title will be able to charge customers less by using tech to look through public records more rapidly. OneTitle does not use title agents and can sell premiums at a 25% discount by selling directly, according to Price.
According to Deleeuw, startups have a chance to disrupt the market—at some point. “I understand how startups can come in and take a lot of share, or at least start to take some share, by having a different way of going about the business,” he said. “I’m not saying that it won’t happen in title insurance, but we’re not seeing a lot of evidence of that on a national, scalable level.”

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