While on the surface the title insurance industry is dominated by a handful of national underwriters, a large portion of the volume done by these national firms is originated on a local level by a great number of independent title agents.

These independent agents are experts in the title regulations and requirements of their individual states.

In addition, some states or areas within the states still have not automated their record-keeping systems, making the creation of title plants difficult - if not impossible. This leaves the title business to the traditional method of traveling from courthouse to courthouse to complete title searches.

For example, in East Tennessee, the biggest expenditure for Tennessee Valley Title Insurance Co., Knoxville, is for the examination of titles. This usually involves sending one of the firm's eight lawyers to one of the 18 county courthouses in their operating area. Here they spend hours deciphering what are often aging documents written using antiquated real estate terminology. This time is expensive.

"This area has been slow to automate record-keeping," says Robert R. "Bo" Croley, president of the firm, adding that "there are no title plants in East Tennessee."

One advantage to the difficulty of title operations in the area is that the independent agents here are very popular with the national firms. Croley's firm originates for a number of underwriters, including LandAmerica Financial Group Inc. (the firm resulting from the merger of Lawyers Title and Commonwealth Land Title) Richmond, Va.; First American Title Insurance Co., Santa Ana, Calif.; Ticor Title, Chicago; and Fidelity National Title of New York.

"They tend to need us more in these areas," says Croley.

In some states the way title information is compiled complicates the title industry.

Dealing with 'Abstract States' For instance, Oklahoma, Indiana, Arkansas and a few others are still what is called "Abstract States." All real estate files are called abstracts and, to be a title insurer in the state, you must also be a licensed and bonded abstractor in that state, says Jack Kirkpatrick, president of Guaranty Abstract Co., Tulsa, Okla.

These abstractors basically update the real estate records of the properties for the state as they research the titles, he says. This method of record-keeping limits the ability to create title plants, because the records aren't updated until the need arises. However, Guaranty Abstract does have its own set of independent records for Tulsa County. But title work in any other counties in the state requires the same courthouse legwork mentioned earlier.

While unusual regulations and outdated record-keeping are part of the reason the national firms use independent agents, they also have a place in urban areas that are on the cutting edge of technology. Here national underwriters use them to ensure their volume of business is handled promptly and in a quality manner.

Ticor Land Title Co. operates in four counties in and around the Dallas-Fort Worth area. The company does an annual business volume ranging from $12 million to $14 million in premiums for Chicago Title Insurance Co., Chicago, and LandAmerica Financial Group Inc.

Texas and title plants As its name might indicate, Ticor Land Title has a closer relationship with Chicago Title. The firm negotiated the use of the Ticor name (Ticor is a Chicago Title affiliate) and also leases four title plants - one each in Dallas, Collin, Denton and Tarrant counties in Texas - from Chicago Title.

"To be in the title insurance business in Texas you have to have a title plant," says C.E. "Kim" Seal, Ticor Land Title's chairman and CEO. By leasing from Chicago Title, he meets that requirement without having to create his own.

In Texas and a number of other states, the insurance rates and commission divisions are set by the state's Department of Insurance. The commissions are divided on a rate of 82.25% for the agent and 17.75% for the underwriter, says Seal.

While the commissions are high, the costs of operation for the independents are also. Seal estimates that maintaining the four title plants costs around $15,000 per month in addition to other overhead his firm carries.

He adds that title insurance rates in the state are based on a 1976 formula providing for a 7.5% profit margin for premiums, and thus, are the same for everyone.

Rate regulation means better service The regulation of rates is generally viewed favorably because it guarantees a profit for the insurer. In some states such as Oklahoma, rates are not regulated and, as a result, competition has driven rates to extremely low levels, making it difficult for title firms to operate successfully. "The rates in Oklahoma are down about 50% from the national average," reports Kirkpatrick. "Unfortunately what controls the orders here is price."

But in Texas and Tennessee, where rates are also regulated, competition among title insurers has to take place in other facets of the business. "You can't compete on price, so you have to compete on value-added services for the client," Seal explains. "This means service that is quick, accurate and responsive."

Improving service is an area where the independent agent can greatly benefit from its relationship with the national underwriters. The national firms often provide training for the independent agent's employees as well as providing access to more advanced technology that can help speed the title process for clients.

Commercial work raises dollar volume In terms of policy volume, about 70% to 75% of an independent agent's work is residential, the rest commercial. In fact, Seal says his firm has eight offices that handle residential and only one to handle commercial policies. But in monetary terms, the ratio is reversed with commercial business bringing in three times as much dollar volume. "The commercial side is where most of the profits come from," explains Croley.

He says that currently most of the commercial business is from the sale or refinancing of factories, apartment complexes and office buildings. And the amount of commercial and residential business continues to grow.

"The industry has more than doubled since 1990," points out Seal.

The most important benefit the national underwriters bring to the independents is an increased amount of business.

"The underwriter puts the emphasis on marketing and advertising, and that helps us," says Croley. "They develop the relationships with the large developers and law offices and get the large portfolio business that results in business for us."

"They have the offices in the major financial centers and chase the big deals that provide the work that trickles down to independent agents like ourselves," adds Kirkpatrick.

He cites one example of the type of business the national firms bring in. "A large fast-food chain with perhaps 500 or more company-owned stores might be looking to refinance all of them," says Kirkpatrick. "That will result in a lot of business for many independent agents."

Nationals create jobs for independents Each national underwriter also acts as sort of a broker network for the independent agents, allowing them to work together on transactions and share commission. "Chicago Title's Agent Link allows us to work with an agent in another city," explains Seal. "We may provide them with the title evidence and research they need, and then they close the deal in their city and send a portion of the premium to us."

But the independent agent can't always simply wait for the underwriter to bring him business, particularly in very active markets. In an active and competitive market like Dallas, the independent agent must be proactive and indeed create business by bringing together buyers and sellers to create transactions.

"Dallas is a white-hot market with a lot going on, so we act like a broker at times." says Seal. "If we are aware of a builder in search of a location and a developer who has what the builder is looking for, we get them together." He adds that often they can also bring in a bank willing to finance the project. "Once the independent agent helps create a few of these deals, word gets around and creates a momentum for more similar deals inthe future."

But there are problems. Seal says these deals can fall apart as easily as they come together, in which case, the originator has to bear the brunt of the loss in terms of the time and expense wasted. "That happens about 20% of the time, even in a good market period like this, but it is still worth the effort," he says.

Because most independent agents work for several national firms, this self-generated business brings up the question of which of the national underwriters gets to write these policies. "We ask the customer to make that call," says Kirkpatrick.

Seal agrees, but adds that when the client has no preference, it usually goes to the firm with which his company has the most beneficial relationship.

On the other hand, Croley says the nature of the transaction can make a difference. "Some of the national firms will view risk differently on various transactions, so the type of transaction involved can make the decision for you," he explains.

Strong economies benefit both sides In strong economies such as the current one, the national underwriters tend to expand their direct operations, where they originate their own policies. These operations are more profitable for them because they do not have to pay the high commissions to the independent agents.

As a result, the underwriters will become competitors of the independents they work with, again, particularly in active markets. Seal says the competition is serious but usually friendly. "In Dallas we share employees with Chicago Title at the title plant we lease," he says.

This added business helps the national underwriter, but not necessarily at the expense of the independent firms. Strong economic growth tends to benefit both sides. "If business is good for the underwriters, it is good for us too," says Croley.

At any rate, Croley and Kirkpatrick say that the difficulties of operation in their areas usually preclude any competition from the national firms.

So the relationship between the national underwriter and the independent agent is unique in that it can be at the same time, symbiotic and competitive. The length of these relationship is based on the quality of the work and the benefits received. Obviously, if both sides are satisfied, then it continues.

Kirkpatrick says that despite the low title insurance rates in Oklahoma, title firms do see one advantage to underwriting policies in the state. "The abstracts are very accurate, and so there are very few problems with policies written here," he says. "It is the only thing that is attractive about working here for the national title firms."

But regardless of the quality of work, the national firms audit the independent agents on a regular basis.

"All the underwriters come in at least once a year," says Croley, "but sometimes more, depending on the volume of business you handle for them. The audits are also more intensive if you do a lot of work for the firm."

"They are checking on the quality control that goes into the policies," says Kirkpatrick. "They usually take three or four days inspecting every phase of our business."

The audits include checking the accuracy of accounting - including commission requests, whether the agent is following the required procedures in the title searches and if the risk involved in each policy is being accounted for properly.

"But the bottom line is the quality of the work; if they are experiencing losses due to policies an agent writes, they will not use them very long," says Croley.

With the cyclical nature of the economy and business being hard to project, most national underwriters like to divide their business more or less equally between direct operations and the independent agents - and slightly tweak the percentages as the market changes.

As long as this philosophy prevails, the future of the independent agent that can provide quality underwriting will remain prosperous.

Why independent agents? * Some areas have not automated record keeping, so title business involves travel by independent agents from courthouse to courthouse.

* "Abstract States" like Oklahoma, Indiana and Arkansas require title insurers to be licensed and bonded abstractors.

* In urban areas, independent agents ensure a volume of business which is handled promptly and in a timely manner.

To regulate or not to regulate? * In some states, insurance rates and commissions are set by the state's department of insurance. (For example, in Texas, commissions are 82.25% for the agent and 17.75% for the underwriter. Title insurance rates are based on a formula providing for a 7.5% profit margin for premiums.) With no competition on rates, competition is based on service.

* In other states, where rates are not regulated, competition has driven down rates.

Commercial vs. residential * Policy volume: about 70% to 75% of independent agent's work is residential.

* Dollar volume: commercial business brings in three times as much as residential.