For the most part, the Commission does not set insurance rates like we do for utilities and motor carriers. Property and casualty, health and life, and other types of insurance are complex products that can put consumers at special risk in the event of improper sales and pricing practices, but insurance is not a natural monopoly like an electric or water utility. For the most part (but not entirely), we leave it to the competitive market to establish rates for these insurance products, and much of the Insurance Division’s work lately has been focused on developing ways to empower consumers to benefit more from competition between insurers.

The regulatory environment for title insurance is different. New Mexico is one of just two or three states in which the selling of title insurance is completely regulated. By state law, the Superintendent of Insurance sets the rates that must be charged for title insurance policies, and establishes the precise coverage of policies and the words that must be used in title policies. Statutes and Insurance Division rules even specify how title insurance “plants” are to be operated.

In 2005 or 2006, a national magazine did an investigative study that indicated that New Mexico’s title insurance rates were among the highest in the country. However, the way that the costs of title insurance show up on closing documents varies from state to state, and total costs in New Mexico may not be as bad as this particular study suggests. It must be noted that, despite public skepticism, our rates have actually been trending downwards in recent years, and may do so again this Fall.

When I was first elected to the Commission, I thought that the way to “fix” title insurance in New Mexico was to de-regulate rates, and let competition drive them down. After all, our current regulated system was put in place at the request of the title insurance industry – not consumer advocates – and amounts to a legalized price-fixing scheme that protects the title companies from competition. I have since learned that the states with supposedly competitive title insurance markets are not particularly happy with their systems and that title insurance market practices have been the subject of Congressional hearings, GAO studies, and investigations by state insurance commissions.

Title insurance is a classic “imperfect market,” because the person choosing the vendor (the real estate agent) is not the person who will be paying for the service (the home buyer). Thus, title companies typically compete for business on things that benefit real estate agents (ease of closing, attractive and convenient offices, etc.) than things that benefit the consumer like low prices and broad coverage. In 2005, one of the largest title companies (five companies completely dominate the U.S.) was caught paying illegal kick-backs to developers and builders. Our neighbors to the north in Colorado hit the company with a substantial fine. There was an informal investigation by our Insurance Division soon afterwards that disclosed one instance of the same practice, the company offered refunds, and the matter was not pursued further until this past winter when Commissioner Lujan requested a formal investigation, with appropriate action to be taken. I have heard that the Title Insurance Bureau, with their formal examination into this area, has identified at least one other kick-back incident and other related issues.

Besides price, another concern with title insurance is coverage. During this past legislative session, the PRC supported a bill that would have struck language from New Mexico law that insulates title companies from being sued for negligence in their title searches. This issue is is related to coverage in that it is only likely to arise in a situation where the title insurer is not providing coverage under the policy. Commissioner Lujan and I spoke in favor of this pro-consumer legislation through several legislative committee hearings, and participated in several meetings in an attempt to iron out differences between the bill’s advocates and industry.

An underlying problem affecting our regulation of title insurance is a lack of objective information. The Superintendent and the Commission are working to address the information deficits over the course of this year, so that as we move forward, we do so in a more informed manner. The Insurance Division’s Title Insurance Bureau has a number of related initiatives underway: The formal examination into kick-backs I mentioned earlier; a contract with the UNM Anderson School of Business to prepare an objective, “apples to apples” study comparing our title insurance costs to that of neighboring states; a contract with a CPA firm to selectively audit financial data submitted by title companies for our rate setting hearings; and a “data call” to provide detailed information on paid and denied title insurance claims. The Superintendent is also reconstituting our title insurance advisory group as a broadly based group with representation from consumer and industry interests. Our initiatives have attracted national attention, including a mention in the N.Y. Times, and the director of a well-known national consumer group has volunteered to serve on our task force.