“Claims occur in difficult markets, when the price of housing is declining and transactions are few; there are fewer claims when real estate prices are rising.”, said a CFO of a large underwriter during a keynote speech at the ALTA annual conference in the late 1990’s.
Those words have resonated as the title insurance industry reaped the rewards of declining interest rates and rising real estate prices. The last 25 years have been a golden time for the title insurance industry, despite a global financial meltdown and a global pandemic.
A generation of managers raised in this era saw increasing refinance transactions and low claims. Industry thought leaders began discussing a casualty model for the title insurance industry, where reductions in product quality – which saved operational costs but may lead to higher claims – were considered an acceptable price to pay for increased profits.
The late 1990’s saw the start of off shore outsourcing in the title insurance industry – saving title plant and title production costs by over 50% compared to then existing methods. Early entrants in the outsourcing space, steeped in the claims avoidance strategies central to the title insurance industry, produced work similar to in-house production at a massive savings in operational costs.
Soon, new entrants offering outsourcing services began to compete for business by offering lower prices than the established companies and because claims were so low, they found an industry willing to accept the lower quality – the start of a casualty mind set in the industry. The savings in operational cost were more than made up by larger profits, even after accounting for the marginally higher claims.
While the industry was adapting to these changes, HDEP International – the original outsourcing company – remained committed to producing high quality title plants and title production, firm in its belief that one day the cycle would turn and the industry would once again understand that the price of claims is higher than the cost of profit.
There were heated discussions at industry conferences. One day in a dark bar, a dear industry friend looked at me with sadness and said – “Virendra, quality whispers and price screams.” I still remember my friend’s worried eyes as he saw our competitors win business that should have been ours.
The years of ever-lower interest rates and mortgage refinancing to capture each rate decline ended in 2023.
The cycle has shifted … interest rates are rising, real estate prices have stalled in many areas of the United States; refinance transactions are becoming less common. A generation of title insurance professionals will have to come to terms with this new reality – fewer transactions, more sales orders, higher claims due to title production errors. Past down cycles saw contracts scrutinized for the smallest error, eyeing any way to file a claim or exit a hasty purchase. As the claims increase, investigations will reveal that many of the errors are due to low cost outsourced title production and title plant indexing
We are hearing rumblings, pointing the finger at all the off shore outsourcing companies…if so many companies have produced inconsistent products, surely it’s the nature of outsourcing and the complexity of title work that is at fault – the work is too difficult, there are too many nuances, it’s impossible to transfer enough knowledge to an off shore location.
Some of this is true. The race to offer the lowest price meant scant focus on accuracy and completeness. But if the outsource model is uniformly poor, how then, to explain the success of the work done by the few stellar off shore outsourcing companies like HDEP International?
HDEP International is an ALTA Elite Provider with a long history of doing outstanding work for our clients. Our client relationships span decades. We made a decision almost 35 years ago to focus on high quality work and eschew the siren song of growth at any price. That one decision guided dozens of smaller decisions on how to organize our operations – hiring, training, systems and organization. As we saw other companies come and go, and some become much larger than us as they offered lower prices, we have stuck to our original decision. Our clients are happy, and we believe that we have a sustainable business model that works well for the title insurance industry.