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4. Other Protection Available to UnderwritersCrime insurance, sometimes called business fidelity insurance, protects thepolicyholder against losses due to victimization by criminals, including employee theft orother offenses with the potential to cause financial ruin. A crime insurance policy mayprovide coverage when the policyholder suffers a loss from embezzlement, theft, forgery,computer fraud, and safe cracking. 21An underwriter may buy crime insurance to protectagainst agent or employee theft. Of the 17 underwriters that responded to the InsurerSurvey, one indicated that it purchased a $15,000,000 crime insurance policy with anannual premium of approximately $157,000.5. Summary of Industry PracticeOf the 17 underwriters responding to the Insurer Survey, 15 reported that theymaintain some form of bond or insurance policy to protect against loss caused by theft ofescrow funds by an appointed title insurance producer beyond the protection afforded bythe surety bond required by law to be purchased by title insurance producers. Of those15, eight purchased fidelity bonds, three purchased crime bonds, three purchased “bonds”(unspecified), and one purchased crime insurance. Two of the insurers that purchasedcrime bonds purchased multiple crime bonds for varying amounts of coverage.Additionally, 15 of the 17 insurers reported purchasing reinsurance, with four reportingthat their reinsurance agreements provided coverage for loss due to theft of escrow funds.The MIA is unable to directly compare the coverage and associated costs of thesevarious forms of protection, as the actual terms of bonds and policies vary. However, as21 This non-exclusive list of the types of coverage available under a crime insurance policy is based on areview of crime insurance policies offered in the State.18
Table 3 demonstrates, the amount of protection purchased by underwriters ranged from$150,000 to $55,000,000 with annual premiums of between $1,750 and $1,385,000. Inthe MIA’s experience, at least some underwriters do not regularly monitor the extent oftheir potential exposure to loss as a result of possible defalcation.Coverage Purchased to ProtectAgainst Loss Caused by Theft ofEscrow FundsTable 3Number ofUnderwritersPurchasing CoverageReported Annual Premiumfor CoverageCrime Bond 3 $213,6688 - $1.3 millionCrime Insurance 1 $157,000Fidelity Bond 8 $1,750 - $700,000Bond 3 $60,000 – 175,000Reinsurance 22 4E. Real Estate Settlement Protection Practices in Other StatesStates take varied approaches to the regulation of the title insurance industry andhave developed a number of tools designed to manage the risk of defalcations. Thefollowing information is not intended to provide a comprehensive survey of the title lawsof all 50 states. 23Rather, the practices discussed below are those that appear to be mostcommonly used by states to prevent and reduce the effects of defalcations. 2422 Fifteen Insurer Survey respondents indicated that they purchased reinsurance. However, only four of therespondents indicated that their reinsurance agreements provide coverage for loss due to theft of escrowfunds. The survey did not request information regarding annual premiums for reinsurance.23 In March 2010, the NAIC’s Title Insurance Task Force issued a report entitled Survey of State InsuranceLaws Regarding Title Data and Title Matters that provides a thorough, although dated, overview of statelaws and regulations involving title insurance. That report can be found online athttp://www.naic.org/documents/committees _c_title_tf_survey_state_laws.pdf.24 Earlier this year, the NAIC formed a subgroup to develop a white paper on title escrow theft and titleinsurance fraud. The subgroup was asked to examine ways to mitigate the impact of title insurer andagency insolvencies on policyholders, including the use of blanket lenders' policies and individual owners'policies to replace those issued by insolvent insurers; examining the financial failures of title producers;and promoting the use of closing protection letters. The subgroup is to report its results by the 2013Summer National Meeting. The subgroup’s work can be followed online athttp://www.naic.org/committees_c_title_tf_escrow_theft_white_paper_sg.htm.19
Page 2 and 3: Report of the Study ofClosing or Se
Page 4 and 5: TABLE OF CONTENTSI. EXECUTIVE SUMMA
Page 6 and 7: Although in a minority of states an
Page 8 and 9: or misuse of closing or settlement
Page 10 and 11: (4) Division of Consumer Protection
Page 12 and 13: title insurance producer or agency
Page 14 and 15: As part of its Insurer Survey, the
Page 16 and 17: or dishonest practices, the underwr
Page 18 and 19: eported having a least one escrow a
Page 20 and 21: ond also may be purchased by an und
Page 24 and 25: 1. Preventive MeasuresProducer Lice
Page 26 and 27: lender’s funds or documents. The
Page 28 and 29: In the event of the insolvency of a
Page 30 and 31: insurance task force. The informati
Page 32 and 33: in excess of 20 cents in claims on
Page 34 and 35: create an environment vulnerable to
Page 36 and 37: Appendix 1MARTIN O'MALLEY, Governor
Page 44 and 45: AppendixAppendix22MARTIN O’MALLEY
Page 46 and 47: Appendix 2c. If you answered “No
Page 48 and 49: Appendix 2Certification of Informat
Page 50 and 51: Appendix 2QUESTION #3Schedule BStat
Page 52 and 53: Appendix 3
Page 54 and 55: Appendix 3SURVEYTitle Insurance - C
Page 56 and 57: Appendix 3a. Does your title insura
Page 58 and 59: Appendix 3QUESTION # 2Schedule ADor
Page 60: Appendix 3QUESTION # 10Schedule CMi

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