Policy Council advocating title insurance reform
By Dallas Woodhouse
Bills under consideration in the S.C. Legislature would remove a quirk in state law that unnecessarily regulates the relationship between title insurance agencies and their underwriters.
A recently filed state House bill along with its Senate counterpart would embrace the free-market system and allow the two parties to negotiate commission payments on their own terms.
South Carolina and Connecticut are the only two states that impose a cap on the commission paid to a title examiner (agent) when someone buys title insurance.
“This change will free small business owners (title insurance agencies) to negotiate commissions with big out-of-state insurance companies that do business here,” said real estate lawyer Nathan Galbreath of Greenville, managing partner of Nelson & Galbreath, which has offices statewide and in Atlanta. “The net result will be to immediately put over $45 million into small businesses throughout South Carolina every year.”
Said real estate attorney Trey Ingram, president of Holliday Ingram, which has offices in the Upstate and Lowcountry, about the proposed legislation: “South Carolina consumers benefit because this will foster greater competition between insurers, thereby producing better products at more competitive rates and higher revenue for local small businesses.”
Title insurance is commonly a policy meant to protect home buyers and mortgage lenders from financial losses caused by title defects, such as outstanding liens and back taxes.
When calculating title insurance commissions, the normal split in most states is roughly 70%-80% for the title agent and 20%-30% for the insurer. But South Carolina law caps the split for agents at 60%, though agents do most of the work in researching title claims, which can be time-consuming.
Agents greatly reduce the risk assumed by underwriting insurance companies while often being required to compensate the insurance company for some losses.
S.C. lawmakers in 1988 passed broad legislation regulating the title insurance business, which, among other rules, established the 60% cap on commission that a title agent can earn. The bill history indicates it was fast-tracked through the Legislature, bypassing both the House and Senate committee process.
The current House bill (H.3830), filed in January, would remove the cap and place South Carolina among the vast majority of states that use a free-market approach instead of an arbitrary standard. A similar proposal was filed in 2021.
“South Carolina is one of only three states nationwide (Connecticut and Florida also regulate commission splits) to reject the free negotiation of title insurance commission in favor of a regulatory cap or minimum,” said Bryce Fiedler, the Policy Council’s senior policy analyst. “Under this system, South Carolina agents have among the worst commission splits in the United States.”
“South Carolina agents perform all the substantive functions that give rise to a title policy: title examination, title review, curing title defects, certifying title, drafting the title commitment, and actually issuing the title policy,” Fiedler continued. “To be clear, the Policy Council can’t possibly know what the proper split is between agents and insurance underwriting companies, nor can the state of South Carolina.”
There is no evidence from the other 47 states that South Carolina consumers will face higher insurance rates with the proposed change in state law. The Policy Council contends the opposite, as free-market pressures likely would lower premiums for consumers.
There also is no clear legal or moral justification for the state’s current law, which puts the government in the position of picking winners and losers. It’s a system that works against South Carolina’s hardworking professionals and favors large, out-of-state multinational corporations.
Woodhouse is executive director of the South Carolina Policy Council – the parent organization of The Nerve.