February 23, 2005 by Canadian Underwriter
California Insurance Commissioner John Garamendi has issued subpoenas against title insurers in the state.
In a media event set at a new home development in Sacramento, Garamendi announced he was investigating “a scam perpetrated by title insurers, realtors, lenders and developers”.
“In the name of greed, title insurers are paying kickbacks by unnecessarily raising the price of premiums and splitting the overcharge with the other conspirators. In return, the realtors, lenders and developers refer all of their business to that title insurer,” he charges.
Garamendi alleges this has led to “untold millions” in costs for homeowners in the state.
Garamendi, who chairs the “title insurance working group” of the National Association of Insurance Commissioners”, says he is working the regulators in Colorado and Washington to probe “phony reinsurance contracts” between the above mentioned parties. “Under these elaborate schemes, the title insurers agreed to give about half of the premium on title insurance policies to “captive” reinsurance companies created by the other conspirators. The parent companies of those “captives” would in turn refer business to the title insurer.”
Among the companies Garamendi has named so far as targets of the investigation are Fidelity National Title and LandAmerica. A public hearing is set for April 4, and Garamendi also intends to hold hearings on concentration in the title insurance market, noting just three carriers control almost 75% of the California market.