Ever have a client who was sure their transaction had to be written on a large underwriter? Hey, I get it. Clients are sometimes drawn to the big title insurers, assuming that there are benefits to partnering with a large organization. They may feel a smaller underwriter won’t be able to meet their needs, and the deal is just too large or important to leave anything to chance.
As an independent title agent, you know the importance of selecting a trustworthy, reliable, and responsive partner to provide title insurance for your clients. In this blog, we’ll dive into the features that matter most when selecting an underwriter, debunk some common myths, and show why bigger isn’t necessarily better when selecting a title insurer. First, let’s consider some of the reasons a client might ask you to ensure a transaction with one of the big guys to see if that request aligns with their interests or if they are simply following a common myth.
If I go with a big underwriter, won’t I get better coverage?
There’s a common misconception that the product of the title insurer – the title policy and endorsements – often varies meaningfully in the terms and coverage between underwriters. It’s just not so.
The truth is that generally the product is the same regardless of who underwrites the policy. In states where the forms are promulgated by law, the insurance regulator determines for the entire industry what language is acceptable, and what terms and conditions will be incorporated into their contracts. In states where the forms are not promulgated, most insurers use either the American Land Title Association forms, or the California Land Title Association forms, with little variation.
Basically, the policy will be the same or similar regardless of the underwriter.
If I go with a big underwriter, won’t I get a better rate?
At first glance, this seems like a very reasonable question. In some industries, larger companies have a natural pricing advantage. But in title insurance, it’s hard for an underwriter, no matter how large, to distinguish itself on rates. In states where the rates are promulgated, the insurance regulator decides what to charge and all insurers must follow the regulator’s set rates. Even in those states where regulators do not mandate rates, there may be a ratings bureau that files rates on behalf of its member insurers – which means that most, if not all insurers, will be offering the same rates. And, in those states where insurers file their own rates, they are typically competitive and therefore very similar.
So, the rates will be the same or similar, regardless of the underwriter.
If I have a claim, won’t a big underwriter be in a better position to pay?
Again, this question seems reasonable. Title claims can run into the millions of dollars on commercial properties, so a client might think a big underwriter naturally has more resources to pay claims compared to a smaller underwriter. However, two broad factors level the playing field when it comes to paying claims: state regulation and reinsurance.
State regulators take great pains to protect the public by ensuring that title underwriters of all sizes have the resources to pay claims. Statutorily required reserves must be set aside to pay claims. Regulators carefully monitor the financial soundness of the insurers authorized to do business in their states, and title insurers submit both annual and quarterly financial statements. Title insurers have annual independent CPA audits and are subject to financial examination by the regulator, typically at least once every five years. This means that no matter the size of the insurer, there is a financial threshold that each insurer must meet to ensure its financial stability and continued operation. Moreover, many states have single risk limit formulas that cap the amount a title insurer may insure for a particular transaction risk without having to provide reinsurance.
When reinsurance is provided, there are essentially two insurers – the primary title insurer, and the reinsurer who stands behind the reinsured policy amount. So, while it’s true that a large title insurer may retain a larger dollar amount by itself as a single risk, a smaller title insurer utilizing reinsurance for that single risk is giving the insured two layers of financial security at no additional expense to the insured. A title insurer should be happy to provide you with information regarding its reinsurance, and as a customer or agent, you are entitled to ask for it.
At Alliant National, we reinsure high liability transactions up to $20 million with the Lloyd’s of London markets, and that’s one of the reasons we can confidently say: No title insurance underwriter can offer you better protection for your title risk than Alliant National.
So, if the policy and the price are similar, and the capability to pay claims is sound, what are the real differences between those big underwriters and a smaller underwriter like Alliant National? Moreover, what are the reasons a client might want to select Alliant National over a larger underwriter?
We Don’t Compete Against You For Customers
Alliant National does not compete against you for the customers in your market. Our sole focus is to support the independent title agent. Alliant National will never take a transaction or a customer from you. We strive to help you build better relationships with your customers, and to help you succeed.
Fast And Innovative Answers To Underwriting Questions
Underwriting delays put deals at risk. That’s bad for you and your clients. Sometimes big underwriters back-burner underwriting requests to service their company-owned title offices, and they sometimes provide “canned” or “by-the-book” responses when an underwriting challenge arises. Alliant National does not compete with its independent agents, so it’s able to put all of its underwriting resources to work for independent title agents and their clients. As a smaller underwriter, Alliant National also has the flexibility to find innovative solutions for you and your clients when underwriting challenges arise.
Less Friction
At larger underwriters, the agency and underwriting units can often be at odds with each other. There can also be communications breakdowns between corporate, regional, and state-based teams. At Alliant National, however, the absence of a multi-tier management structure gives our agency, underwriting and other teams the ability to work together closely and seamlessly. Everyone pulls in the same direction to deliver the best outcomes for our agents and their clients.
Real Service When Claims Emerge
We already discussed why the big underwriters generally are not “better” when it comes to the ability to pay claims. However, some big underwriters fall short when it comes to the claims process by making it seem like their goal is to pay no claims at all. At Alliant National, we have flipped the script when it comes to claims. We recognize that the claims department is where our title insurance product goes to work. We strive for timely and clear communication with insureds and agents, seeking first to understand the situation from all points of view. It’s a unique and collaborative approach to claims that agents and insureds value.
The Courage To Care When it comes to choosing an underwriter, it’s important to consider what really matters: finding a partner who prioritizes your needs and the needs of your clients. Unfortunately, larger underwriters may lack the flexibility and personal touch that independent agents and their clients require. Don’t get me wrong, there are a lot of great people working at large underwriters, but size can lead to conflicts, friction, and a lack of flexibility. At Alliant National, we pride ourselves on being able to deliver customized solutions that meet the goals of the real people behind each transaction. Whether it’s a multi-million-dollar commercial deal or a starter home for a young family, partnering with Alliant National means choosing a team that truly cares about you and your clients.
When you look at companies that have succeeded in turbulent times you, will find those that embrace strategic planning fare the best. Strategic planning is found to have a positive impact on organizational performance and is a must for enhancing an organization’s capacity to achieve its goals.
As a title professional, now may be a good time to review your strategic planning process and look for ways to improve it.
Before you begin, it’s important to realize what a strategic plan really is. A strategic plan is a complete and comprehensive activity. It is not document or slide presentation created at the beginning of the year and then tucked in a drawer. The steps of the strategic plan include selecting your team, analyzing current situations and considering future possibilities, defining objectives, creating the plan to realize the objectives, communicating and implementing the plan, and monitoring and adjusting the plan. As you see, “planning” is an important element of the strategic plan, but it’s certainly not the only element.
Here are some things to keep in mind while building and executing the various parts of your strategic plan.
Selecting your team
Be really honest about your team’s strengths and weaknesses, and where you might need to upgrade. An essential requirement for performing the strategic plan is to make sure the members of your team are up to the challenge – psychologically strong, honest, respectful of competitors, accountable, focused, principled and confident but not arrogant. Are their moods appropriate? Nothing thwarts a plan like negativity from a leader, and nothing helps motivate a team who can share their passion for the future of the organization. Ask yourself: do the members of your team embrace the importance of strategic planning, or do they think it’s a distraction from the “real work?” If you’re a business leader, it’s important to reinforce the importance of strategic planning, particularly in a challenging market environment.
Analyze current situations and future possibilities
The next step is to assess current situations and future possibilities both inside your business and outside in the market. The idea here is to ground your assessments about the current situation. Asking the question “where are we now?” is a way to think about this analysis. Internally consider your systems, procedures, and people. Look at your income and balance sheets, sales projections, customer satisfaction, market share and competitors. A SWOT analysis (Strength, Weakness, Opportunities, Threats) is commonly used. When you have considered the present circumstances and characteristics of your company, then move externally to review and write out your assumptions about customers, competitors, the market, and the economy. Try to stick to the facts and leave emotion and speculation out of your data gathering. As human beings, we have a habit of overestimating our capabilities, so it’s important to ground our assessments.
Defining objectives
With your facts in hand from gathering data, now it is time to set objectives. Asking the question “where are we going?” is a common way to think about this phase. Consider the future you would like to see for your business. What are you hoping to produce at the end of the year, in 18 months, in two years? People tend to think in one, short time horizon, so it’s important to consider your objectives over multiple horizons of time. It may also be helpful to view your business objectives in light of your organization’s Mission, Vision, and Values.
One problem with many plans is that there are too many strategic objectives. Keep it simple and real. Get clear about what’s important and urgent and what is not. Of course, remember that people − real human beings − must perform your plan. Be realistic about what your team can do, and what they cannot do. Finally, do one last “gut check.” Ask yourself if your objectives are competitive enough. Said another way, will you be satisfied if you achieve your objectives? While it’s important to think simple, it’s also important not to think too small, particularly in a challenging market like we have now. You need objectives that will get the job done.
Strategies and tactics to realize objectives
Now it’s time to ask “how will we get there?” How will the objectives you have outlined be achieved? Consider the work your organization faces as you seek to convert on your objectives and make a plan specifying the members of your team who will do the work, by when, to what standard and how much you expect it to cost. It’s helpful to think in terms of SMART goals – Specific, Measurable, Achievable, Realistic, Timebound. After you have a rough plan, it’s important to try to pick it apart. To plan with confidence, it’s worth considering where the plan is most likely to break down. Some common flaws include poorly trained employees, poor data gathering and analysis, underestimating competitors, disregard for the importance of new tools and technology obligations, overestimation of sales skills (or other skills), and the lack of new products and services to keep up with change.
Communicating and implementing
When communicating your plan to the company at large, keep it simple, keep it SMART and make it important. Your plan has taken a lot of work and it represents a brighter, more successful future for your company. It’s a big deal, and it’s worth getting excited about. Your management team has a key role in holding the strategic objectives and tactical focuses outlined in your plan. Reinforce them. Be proud. Encourage your team to repeat over and over again what the team is doing and why. Use the same language, the same distinctions, the same graphs and charts. Communicate budgets, timelines, and what people are doing what. Honor their work by sharing key metrics and tell stories about milestones achieved. Hold regular meeting rhythms for key employees that focus on breaking down barriers and resolving issues that stand in the way of team goals.
Monitoring and adjusting
The final step in performing the strategic plan is to monitor, evaluate progress and adjust as needed. As a traveler checks the signs along a road while completing a journey, so to must we track progress toward our objectives. If you are a leader, it is important to maintain discipline and enthusiasm for the plan. Remember that adage that no plan survives first contact with reality, so adjust as needed, but … resist the temptation to trash your plan completely. On tough days that temptation may be strong, but remember the brighter future you and your team have envisioned. Keep progress moving toward your goals, even if you must take a step backward now and then. In closing, the strategic plan is a living and evolving set of commitments. Performing it requires continuous updates, interpretations and assessments of key metrics and situations. The more effective your practice of the strategic plan, the nimbler and more resilient your company will be; greatly enhancing your likelihood of success in these turbulent times.
Cyber criminals are busier than ever. Staying safe requires fraud awareness and the right business insurance coverages. Jerome Magana of SSIS Securance and Tom Weyant, Alliant National’s Risk Management & Data Privacy Officer, sit down to discuss the latest fraud trends and tips for making sure your businesses is positioned to recover in the event of a cyber fraud attack.
Forecasters Remain Cautious Given Inflation, Interest Rate Uncertainty
The real estate market has cooled over the past quarter, as buyers face mounting economic pressure from inflation, bloated housing prices, and escalating interest rates. But the question in most forecasters’ minds is what will happen in 2023 with inflation and interest rate projections in – as yet – unknowable territory.
Although experts are all over the map when it comes to predicting interest rates – projections for 2023 are currently ranging from 5% to 9% – everyone agrees that it largely depends on the Consumer Price Index and the Federal Reserve’s interest rate decisions that result from that data.
Economic predictions are often based on “the way it happened in the past,” but economic fundamentals are rarely exactly the same mix as in the past. Such is the case today, where economic fundamentals are largely stable and housing inventory remains tight – a promising recipe for a decent, albeit softer, purchase market in 2023.
Rodney Anderson, Executive Vice President, National Agency Manager with Alliant National, noted on a recent October Research webinar that while we are currently experiencing a slowdown in the market, it’s difficult to say what portion of that is seasonal and how much is interest rate-related.
“We’ve had a sellers’ market for a long time, and now, we are returning to equilibrium,” he said. “But if you look at the number of houses on the market, we are still in a sellers’ market, with a lot of regions experiencing only a 3-months’ supply, so there is continued support for prices to remain fairly stable.”
Although there remain a lot of unknowns, many economic forecasters retain a sense of cautious optimism based on what we do know, while lenders and real estate professionals are facing the reality of lower sales and originations in 2023.
Key Factors: CPI and FOMC
The Federal Reserve’s battle against inflation remains one of the key factors in the overall economic outlook for next year, as well as the outlook for the real estate markets, since with each incremental rise in the interest rates, a new segment of buyers will be priced out of the market.
The Federal Reserve has maintained a hard line with regard to inflation, and Federal Reserve Chairman Jerome Powell did not soften his tone during his Dec. 14 presentation following the December meeting of the FOMC, where he announced the Fed would be raising the interest rate another half percent.
“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Powell said at the outset of his speech. “Without price stability, the economy does not work for anyone and without price stability we will not achieve a sustained period of strong labor market conditions that benefit all.”
In addition, Powell said he anticipated that “ongoing increases would be appropriate in order to attain a stance of market stability that is sufficiently restrictive to return inflation to 2% over time.”
One positive indicator in December was the Consumer Price Index, which showed inflation had slowed to 7.1%. While that stat was encouraging, Powell said it was not enough to deter further interest rate hikes.
“It will take substantially more evidence to provide confidence that inflation is on a sustained downward path,” he said.
With the target federal funds rate range now at 4.25-4.5% and Powell suggesting further hikes, it is now anticipated that the federal funds rate could rise to 5.5% in 2023, adding some further deterioration to the pool of potential buyers.
Federal Reserve reports stable economic activity
The Federal Reserve’s Nov. 30 release reported economic activity was flat or up slightly across most of the districts, a sign that the economy continues to hold its own despite the known headwinds of inflation, high interest rates and global issues.
Reports across sectors were uneven. Not surprisingly, lending, home sales, apartment leasing and construction all exhibited slowing trends while improving inventory in the auto industry has resulted in an increase in sales in some districts. In addition, spending was up in travel and tourism, and as well as in restaurants and hospitality. Manufacturing was also up slightly on average.
Employment numbers remain steady
Total nonfarm payroll employment increased by 263,000 in November, and the unemployment rate was unchanged at 3.7%, according to the Dec. 2 release from the U.S. Bureau of Labor Statistics. Notable job gains occurred in leisure and hospitality, health care, and government. Employment declined in retail trade and in transportation and warehousing.
Consumer confidence concerns were largely allayed by record Black Friday and Cyber Monday spending. Although inflation has taken its toll on consumers, low unemployment has kept spending steady across many sectors, including mortgage and rent payments, a factor that is keeping foreclosures contained.
Employment is also a major factor in keeping foreclosures down, and while labor demand is weakening, according to the Federal Reserve, businesses are expressing a reluctance to lay off due to hiring difficulties. Most importantly, most districts reported a fairly positive outlook, pointing to stable or slowing employment growth and at least modest further wage growth moving forward.
Real estate and lending projections
While the economy overall appears to be stable, the real estate market continues to decelerate.
According to the National Association Realtors (NAR) Nov. 30 report, pending home sales slid for the fifth consecutive month in October, falling 4.6%. Three of four U.S. regions recorded month-over-month decreases, and all four regions recorded year-over-year declines in transactions.
While there are always seasonal declines in the fall, the year-over-year number was more dramatic, with pending transactions down 37%.
“October was a difficult month for home buyers as they faced 20-year-high mortgage rates,” said NAR Chief Economist Lawrence Yun. “The West region, in particular, suffered from the combination of high interest rates and expensive home prices. Only the Midwest squeaked out a gain.”
On the upside, Yun was hopeful that the upcoming months will see buyers returning to the market if mortgage rates moderate, as they have in the past few weeks.
Taking a hard look at the numbers, Freddie Mac, in its most recent analysis, noted that home sales have fallen to a forecasted 5.4 million units at a seasonally adjusted annual rate in the third quarter of 2022 from 7 million earlier this year. The GSE forecasts that home sales activity will bottom at around 5 million units at the end of 2023.
“We expect house prices to decline modestly, but the downside risks are elevated,” Freddie Mac noted. “As the labor market cools off, housing demand will remain weak in 2023, potentially resulting in declines in prices next year. However, home price forecast uncertainty is wide due to interest rate volatility and the potential of a recession on the horizon.”
Freddie Mac predictions include:
Overall originations are expected to hit $2.6 trillion in 2022 and slow to $1.9 trillion in 2023
Mortgage originations will end the year at $1.9 trillion and slow to $1.6 trillion
Refinance originations slowed to $747 billion and will deteriorate to $310 billion in 2023
The Wild Card: Consumer confidence
Data can certainly tell us a lot, but at the end of the day, consumer experience and assessments can impact the long-range reality, and consumer confidence is decreasing, according to the Conference Board Consumer Confidence Index.
While not dramatic, the index backtracked to 100.2 from 102.2 in October. In addition, consumers assessment of the current conditions decreased to 137.4 from 138.7 last month, and consumers’ short-term outlook declined to 75.4 from 77.9.
Consumer confidence can keep the economy and the real estate market moving forward, while hubris can take us into unsustainable territory, as we learned in 2008. A little reality check may not be a bad thing as we all continue to keep tabs on the data and plan for a softer market in 2023.
An abnormally hot real estate market fed by low interest rates and the unexpected burst of buying during the COVID-inspired escape from the city may be finally cooling down in response to rising interest rates, inflation and a skittish Wall Street.
While real estate is taking a direct hit from rising interest rates, inflation is also reducing potential homebuyers’ buying power, especially in the low to mid-range properties. But there are a few upsides that could help us weather the storm.
The team at Alliant National has compiled information on the data points that will most impact the real estate market in Q4.
Inflation and Supply Chain
Two of the biggest challenges in 2022 are likely to persist through the end of the year and into 2023, inflation and supply chain disruptions. Additionally, the war in Ukraine has resulted in Russian energy supplies being cut off to Europe and economic pressures triggering inflation, the rise in interest rates, and potential recessionary trends are creating a confluence of uncertainty.
Concerning current economic trends, the September edition of the Federal Reserve’s Beige Book, indicated that economic activity was unchanged, since their July report, with five Districts reporting slight to modest growth in activity and five others reporting slight to modest softening. However, the report also noted that the outlook for future economic growth remained generally weak, with districts noting expectations for further softening of demand over the next six to 12 months.
Market Fundamentals Remain Steady
Despite deteriorating conditions for some home buyers, steady employment numbers should keep real estate moving through the end of 2022. Although the number of buyers competing for each property has decreased in the last few months, homes are still turning over relatively quickly and, in most regions, are sold at the asking price or more.
Continued tight inventory is expected to keep most markets competitive through the final quarter.
While there is no doubt that the real estate market is likely to continue to slow, especially if the Federal Reserve follows through on yet another rate hike, economists remain watchful of other indicators that could bode well for softening the impact.
According to Fannie Mae’s most recent release, GDP is projected to grow 1.3% in the third quarter of this year, followed by 0.7% growth in the fourth quarter.
However, most economists agree that consumers have been far more unpredictable in recent years and better than predicted GDP growth in Q4 could mitigate some of the other headwinds.
Home equity, another positive indicator for the housing market, has increased dramatically over the past decade. The value of homeowner equity in the United States increased from approximately $8.77 trillion in 2010 to approximately $21.1 trillion in 2020, according to TransUnion. CoreLogic reported recently that homeowners gained another $3.6 trillion from 2021 to 2022 as home values continued to escalate, providing some solid financial strength to help homeowners weather a potential downturn.
First-Time Homebuyer Numbers Dropping
During an October Research webinar in September, Selma Hepp, Executive, Research & Insights Interim Lead of the Office of the Chief Economist for CoreLogic noted that the real estate market is experiencing its biggest hit from first-time homebuyers, who are increasingly squeezed out of the market by the trifecta of higher prices, higher interest rates and inflation that is pricing them out of the market.
In spite of that reality, first-time homebuyers, though making up a smaller percentage of homebuyers in recent months, did bump up their participation in August.
Part of that continued interest could be that many buyers are still finding buying more appealing than renting in markets where rents have escalated faster than monthly mortgage payments in recent years. That reality combined with increasing wages in some sectors is helping offset the trifecta.
Strong Employment Outlook Encouraging
U.S. employment numbers have remained strong through the summer, with the economy adding 293,000 jobs In June, 526,000 in July, 315,000 in August, and 263,000 in September, in spite of recession concerns that predicted otherwise. There are 2.0 job openings for every unemployed person, so the demand for labor is strong and should remain so through Q4, though job openings appeared to be on the decline in October.
In mid-September, the Q4 ManpowerGroup Employment Outlook Survey (NYSE: MAN) indicated that the global labor market was likely to remain strong with steady hiring expected to continue through the remainder of 2022.
ManpowerGroup Chairman and CEO Jonas Prising reported the need for technology talent along with the growth of employment opportunities in finance, banking, and insurance are keeping the labor market strong, especially in the U.S. This along with the fact that the U.S. labor force participation grew to 62.4% in August bodes well for the real estate market as we finish out 2022.
While employment remains strong, the Conference Board Economic Forecast for the U.S. Economy, released on Sept. 14, forecasts 2023 GDP growth will slow to 0.3% year-over-year.
