The title insurance industry uses technology to boost the bottom line.
The title insurance industry, long known for being frosty to technology, has shed that image as its players are now eagerly embracing and investing in the Information Age. Hoping to improve their bottom lines, title insurers and real estate settlement service firms are now using technology to their advantage as they embark on a whirlwind of consolidations, acquisitions of ancillary providers and diversification through fee-based services.
New-fangled title searches Making sure that the seller actually has the title to the property is the first reason to do a title search, says Joe Bonita, chief underwriting counsel for Chicago-based Chicago Title and Bingham Hills, Mich.-based Fidelity Title. According to Bonita, issues that affect the title may include unreleased mortgages, easements over the property, covenants that bind property and restrict its use, or judgments against someone that have been turned into liens.
Commercial searches can be more challenging than residential ones because "residential areas are subdivided into lots and blocks, and the property turns over often, so more is known about it," says Bonita. "Commercial searches deal with a lot more complexity, like easements or unusual financing transactions."
Historically, there has been a slow transfer of title documentation into electronic form by local and municipal offices. "There is really no one single clearinghouse for this information," says Alan Murray, vice president and senior credit officer for New York-based Moody's Investors Service. "There are literally tens of thousands of clearing houses, and that has limited the efficiency and speed with which title insurance processes and searches have been done."
However, Santa Ana, Calif.-based First American Title Insurance Co.'s recent acquisition of five title companies across the country moves its database and those of its subsidiaries - which includes more than 454 million property records and 700 million title documents - closer to an industry goal of centralizing and automating title search processes.
Both manual and computer-based searches have pros and cons. While a computer search may be faster and more efficient, it also means relying on the accuracy of the person inputing the data. "If the input is wrong, the output is wrong," says Bonita.
Once information is entered into a database, it often becomes difficult to trace the problem. Because of this dilemma, the title insurance industry has been somewhat slow to embrace new technology, says Murray.
A centralized title search process is now an industry goal. But, as Murray notes, the achievement of that goal is not entirely within the industry's control, because municipalities are generally slow to automate their title records due to the expense.
"It's not something people want their tax dollars to go toward," says Scott Robinson, associate analyst for Moody's. "Would you like a new library or a more automated title plant?"
Despite the frustrations, both recorders and title insurance companies are making changes. In June, a Salt Lake County recorder completed Utah's first electronic transmission of a public record property transaction.
"Title insurers have been investing very heavily in technology on both of these fronts, capturing data for the underwriting and record keeping process, and also in trying to centralize certain underwriting policy issues and processes in their offices," says Robinson.
Incentives for the drive to technology include competition among the major title insurers, and pressure from government agencies such as Washington, D.C.-based Fannie Mae and McLean, Va.-based Freddie Mac that are encouraging title insurers to make the home-buying process easier. As a result, title insurers are under pressure, both in terms of cost and time, says Murray.
A tool for diversification Looking for a way to lower costs and increase efficiencies, most of the major title insurers are now diversifying through ancillary services. "If all you have is title insurance, you would be at the mercy of interest rates," says Joe Petrelli, president of Columbus, Ohio-based Demotech Inc.
"So, fee-based services are really areas where title underwriters have the personnel and ability to do things more efficiently," he adds. "For example, nowadays banks are known to make their money from fees, not loans."
Through company consolidations and investments in technology, title insurers are looking for ways to develop "one-stop shopping" capabilities whereby customers can acquire all of their real estate services from a single provider. However, in doing so, companies will need to invest in an e-commerce strategy in order to offer the services seamlessly, says Murray.
Title insurance groups have begun acquiring ancillary services through the acquisition of the providers, development of homegrown systems and the creation of alliances between existing providers.
"I think we've seen companies take all three tracks, and I think it's difficult to see which strategies have been more successful," says Murray.
Getting stuck with a provider that is not responsive to market changes is one downside to purchasing a provider, notes Murray. "Whereas if you formed an alliance and outsourced it, you may have more flexibility to choose among competing providers for whoever provides the most responsive service," he adds.
Buying ancillary service providers In March, Fidelity National Financial's (FNF) $1.1 billion merger with Chicago Title Corp. closed. According to Alan L. Stinson, executive vice president and CFO of FNF, the companies' combined investment portfolio was $1.75 billion, giving FNF an additional $100 million a year in returns. This type of merger has given FNF the financial resources for greater product diversity and expansion of its business on the Internet.
Frank P. Willey, vice chairman of Fidelity National Finance Inc., says the Fidelity family of companies now accounts for approximately 30% of the national title business. "The great thing about the Fidelity/Chicago merger was the fact that the combined organization has diversity that's very beneficial to our operations and customers," claims Willey.
"What I mean by diversity is we have geographic diversity," he says. "We have 1,000 offices across the country and more than 7,000 independent agents, so we're very strong in all areas in the United States.
"As technology becomes more prominent in terms of customer service, the role of ancillary services and the ability to furnish ancillary services is going to become more important to the title insurer," continues Willey.
Building your own In contrast to Fidelity, Pittsburgh-based General American Corp. (GAC) used the homegrown method to provide ancillary services. This spring, GAC publicly launched General American Tracking and Order Reporting System (GATORS), its Web-enabled order-tracking, production and reporting system. One of the largest real estate settlement service firms - specializing in title insurance, appraisal and closing management services to the mortgage finance industry - GAC originally developed GATORS two years ago for its national settlement service business. Troy, Mich.-based Title Source; Boca Raton, Fla.-based American Pioneer; Minneapolis-based Old Republic; and Atlanta-based SunTrust have licensed all or portions of this software.
"What this system has allowed people to do is increase productivity," says Rich Snedden, president of GAC. "The technology allows you to process many more items quicker for less expense, which allows you to give to the consumer exactly what they need, something that's better, something that's quicker and something that costs less, which should drive down the cost of home mortgage loans."
According to Snedden, his company was forced to develop technology because it simply was not available. After first looking at technology developed by other companies, particularly title insurance companies, GAC discovered that the available technology was for smaller operators, doing 20 or 30 units a day.
"We do anywhere from 1,500 to 2,000 units per day," says Snedden. "And that technology did not fit what we were trying to do."
GAC first developed GATORS using some technology that was developed by other title companies. However, this technology had neither the security features nor the production capacity that GAC wanted, says Snedden.
So GAC went to work to replace those technologies with its own. The result has inspired "our people to produce higher volumes with fewer people and a greater eye on the quality of the product being delivered," says Snedden.
Creating its own system has given GAC the ability to constantly improve the system according to the client's wishes, adds Snedden.
"Every day, our [technology] team gets requests, and every two to three weeks our company updates our system," he says. "We're constantly updating it with the input of our users."
Trials and tribulations Creating real estate settlement services software can be a complex task. What helped GAC was preparing for Y2K, says Norman E. Gottschalk, vice president of information technology at GAC. Not only did Y2K preparation help his team understand the limitations of the old system, but also create a new system that would be easy for users.
According to Gottschalk, developing software that accommodated so many users' needs became the most challenging part of the process. "Every person wants to do everything their way," he says. It was "a very serious challenge to develop a software that's this intelligent, that can actually do the complete settlement services project, but still keep it flexible and powerful enough to make everyone happy."
Despite the advantages of acquiring and offering ancillary services to customers, Demotech's Petrelli notes that title underwriters will have to be careful with such controlled business. While ancillary services "make sense from a business perspective, federal agencies are still looking at controlled business because it's one thing for customers to have one-stop shopping, but [you can't force] or require customers to engage in one-stop shopping," he says.
Petrelli predicts that in the "next year we'll start to see drafts of disclosures and requirements so customers can see that they have options."
From ancillary services to the Web Title insurance companies and real estate settlement service firms are also using the latest technology to create Web sites to help distribute their ancillary services. GAC created the Web portion of GATORS and recently released the latest version of its Web site.
According to Gottschalk, the new site has many advantages, including a feature that enables clients to download a completed product as a .pdf file. Vendors can also preview payments, check the status on a current or unassigned order in their region and make requests for that work. Property report searches are kept separate from the title commitment system.
"Gone are the old days when people would print off a report and call one examiner after another trying to find out the status of reports," says Gottschalk. "GATORS is designed to operate from a team concept, not an individual concept. Teams are assigned specific customers within specific states, and when the work comes in it shows up in what we call our follow-up queue. So, in essence, instead of people looking for work, the system looks for people to do the work for them."
In addition to GAC, other title insurance companies and settlement services are benefiting from Web sites as well. Last December, First American Title Insurance Co. launched its Eagle Central Web site, designed to help agents with all aspects of their business. The site also offers a link to the FASTWeb online ordering, tracking and delivery system.
Also available through Eagle is the Value-Added Agent Service program, which provides agents with discounts and special offers on items such as title production software. Fidelity National Finance is working to create a comprehensive Web-based real estate documentation system.
After years of hesitation about the Information Age, title insurers and real estate settlement service firms are using technology to offer their customers new products and services. As for the future, bringing recorders' offices up to speed remains a critical challenge.