Title Insurance Deregulation? Sounds Good to me.

So, I have spent some time at Forbes.com today (as you may be able to tell by these last two posts) and found some interesting articles. One recent story that caught my eye discusses the possibility that New Mexico may deregulate title insurance. There are many things I agree with in the article and a something that I tend to disagree with. If you have spent some time at this blog you will see that I am an advocate for making title insurance more friendly to consumers and IMO deregulation would be a step in the right direction.

Some may say that deregulation would hurt consumers but in the case of title insurance it would actually benefit them. Here is why. Currently many states, including New Mexico, have regulations on how much title insurance should cost. This seems like a great idea until you realize that it also means that title companies are not allowed to charge LESS than the state regulated charges. So if a title company has the ability to charge less than other companies they are not allowed to do it. They must charge the mandated rate. This is not good for consumers but it is good for title companies who helped make the law. It decreases competition and creates and oligopoly where a few title insurers control the market.

According to the Forbes article a group called Think New Mexico wants to change that deregulating the industry. That would mean a title company could charge whatever they feel is necessary and let the market decide. IMO this would benefit consumers greatly by allowing them to actually have a choice in who they use for title insurance. It would actually create real competition in the title industry.

One issue I have with the article is that they recommend having lenders purchase title insurance and while on paper it sounds good I think there are potential pitfalls to this. On one hand lenders are more familiar with the process and they have the buying power to negotiate lower prices. On the other hand there is a distinct possibility that they would simply tack on extra charges that are passes on to their customers. This would create a whole new problem that still results in the consumer paying too much. Instead, consumers should be allowed to decide who they buy title insurance from. Open the market up to consumers and they will choose the best title company for them, they would know exactly what the title insurance costs, and would avoid additional charges. It would require title companies to actually be more open and work with consumers. It has worked in the mortgage industry and many other industries. With the Internet the information is available and if the industry were opened up the most consumer friendly title insurance providers would take the lead.

I will be keeping an eye on the situation in New Mexico and hope that they do move forward with deregulation. By creating transparency and competition in the title industry New Mexico could force the title industry to work for the consumer and if successful could force other states to revisit their regulations on title insurance.