report of the commissioner to study - Maryland Insurance ...

More documents

Recommendations

Info

$C:\Documents and Settings\ThomasT\Local Settings\Temp ...$

in excess of 20 cents in claims on each premium dollar collected. Three of those fivepaid in excess of 30 cents in claims on each premium dollar collected. These higherlosses, combined with the fact that Producer Survey respondents reported an averagecommission of 80 cents per premium dollar, means that in 2010 and 2011 certainunderwriters were operating at a loss on their Maryland business.In 2011, two of the 17 responding underwriters reported paying more that 30cents in claims per premium dollar collected. The loss ratios experienced by the titleinsurance industry in Maryland are substantially lower than the property and casualtyindustry. According to the NAIC database, in 2011 the property and casualty insuranceindustry in Maryland paid approximately 67 cents in claims for each premium dollarcollected, excluding loss adjustment expenses, and 71½ cents per premium dollarcollected including loss adjustment expenses. 57V. FINDINGS AND RECOMMENDATIONSThe MIA was charged with evaluating the State’s real estate settlement protectionpractices, including mechanisms for, and the associated costs of, compensatingconsumers, underwriters, mortgage lenders, and other parties for monetary losses thatresult from the theft, misappropriation, or misuse of funds held in escrow by a titleinsurance producer in connection with a real estate transaction.In Maryland, underwriters and title insurance producers use a variety of tools,including annual on-site reviews, fidelity and surety bonds, supplementary insurancecoverage, and reinsurance to manage the risk of theft of escrow funds. The InsurerSurvey indicates that 15 out of the 17 underwriters use fidelity and surety bonds,supplementary insurance coverage, and reinsurance to manage risk.57 These numbers do not include the title insurance industry.28
Although in a minority of states an underwriter may charge a fee for a closingprotection letter (“CPL”), the data considered in this Study do not support the need forlegislation in Maryland that would permit underwriters to charge consumers a fee for aCPL. Current widespread use of CPLs, which are required by lenders in Maryland inexchange for funding a real estate closing, and for which consumers currently are notcharged an additional fee, protect the real estate buyer or borrower and the buyer’slender. Maryland consumers are protected by effective enforcement actions and CPLs.The MIA is not aware of any defalcation for which an affected consumer was not madewhole. Additionally, surety bonds and title insurance policies protect the seller or thirdparties to a real estate transaction.There are other protections for title insurance underwriters, however, that appearripe for consideration. To better track the scope of an individual underwriter’s risk ofexposure to loss resulting from producer defalcations, underwriters could require theirappointed title insurance producers to report monthly the total number of transactions andthe value of those transactions. Furthermore, underwriters that have experienced adefalcation within the last five years could be required to submit monthly reports to theCommissioner regarding the steps it is taking to track and manage the limits of its riskexposure. In addition, Maryland could increase the minimum surety bond amountrequired by statute (now $150,000) to better protect third parties, including underwriters.Virginia requires a surety bond in the amount of $200,000.The costs of these risk management tools vary, but the preemptive tool ofaggressive on-site reviews appears the most cost-effective. Defalcations typically are notcaused by a one-time theft, but are the result of ongoing, lax business practices, which29
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 22 and 23: 4. Other Protection Available to Un
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 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

report of the commissioner to study - Maryland Insurance ...

Create successful ePaper yourself

Delete template?

Save as template?