The New California Department of Insurance Expedited Title Company Application Process: Fact or Fiction?

Obtaining a California underwritten title company license is generally a lengthy process. Once the application is filed with the California Department of Insurance (CDI), it can take a minimum of 6 to more than 12 months until the license is granted.

Within the past year, rumors have circulated that the time period has been significantly reduced for some applicants, even to as little as 60 days. Some have speculated that the CDI is utilizing the so-called “Speed to Market” concept. However, before applicants begin to celebrate, it is time for a reality check.

The “Speed to Market” concept itself is not new in the insurance industry. It is generally defined as “…the time it takes for an insurer to file a new development product with the regulators, and the time a product can be offered in the market place”.^[1]

Since as early as the year 2000, the National Association of Insurance Commissioners (NAIC) has supported programs and initiatives among state regulators to “…achieve or foster turn-around time for getting new products on the market that should include pilot programs to streamline filing and a uniform application procedure”.^[2] The current NAIC Working Group considers as its mission the following:

“The mission of the is to 1) serve as the NAIC focal point for modernization of the insurance product filing and review processes; 2) monitor the development and implementation of speed to market efficiencies and the System for Electronic Rate and Form Filing (SERFF); and 3) provide support to the Interstate Insurance Product Regulation Commission (IIPRC) for initiatives that require uniformity and policy changes within the states, where necessary”.^[3]

For several years, the CDI has encouraged and supported electronic filings through its Online Assistance System for Insurance Submittal program (OASIS). Applicants can file online applications for obtaining a License to Act as an Underwritten Title Company, Consent to Transfer Shares, or to sell to or merge with another company, but the ability to file the application online has generally remained only the “starting point” of a lengthy two-step process. The first step is the prefatory application to obtain the Organization Permit, followed by a subsequent filing to obtain the actual license. During each phase, the CDI’s legal and financial divisions conduct separate and thorough reviews. A major ingredient has been the requirement that the applicant provide evidence of approved underwriting agreements with licensed title insurers, access to title plant data and the capabilities to conduct title searches.

Based on recent discussions with experienced and knowledgeable CDI personnel, there may be exceptions if the applicant has a compelling reason to request an expedited application. Would, for example, the CDI consider the imminent expiration of a funding grant to retrain employees to develop certain work skills to help them adjust to new technology an exception?

There is no question that a “new technology” has entered the title industry as venture capital firms are partnering to “…leverage technology” in the “…title and settlement space”. ^[4]  Will this present a challenge to the title industry’s traditional beliefs and the state regulators’ rules and requirements?

An answer to that question may be gleaned from a December 2, 2017, presentation made to the NAIC’s Title Insurance Task Force by Ms. Adrienne Harris, representing States Title. Ms. Harris stated in no uncertain terms that:

“States Title will replace the title search with a predictive analytics algorithm. The algorithm uses the property address to predict the likelihood of a title claim. Using this  method, a comprehensive title commitment can be delivered in 5 to 10 seconds instead of  5 to 10 business days. States Title will provide comprehensive coverage with no  exclusions, and they expect to have a higher loss ratio than traditional title insurers”.^[5]

As a result, according to Ms. Harris, “… States Title expects to pass on significant  savings to consumers”.^[6] In other words, the cheaper operating expenses will more than offset the higher loss ratios, thus enabling States to offer lower rates. From the minutes of the NAIC presentation, it would appear that States Title’s model may be gaining momentum with state regulators. John G. Franchini, New Mexico’s Superintendent of Insurance, appeared convinced when he stated “New Mexico welcomed States Title to “work with New Mexico regarding legislation required to make their [States] business model possible in their state”.^[7]

California applicants should be wary of banking on the rumors of an expedited process. There is no assurance that circumstances of each application will be considered. However, major changes with new technology and legislative support could be on the horizon. While the result could be an expedited application process, there could also be a significant reduction in the need for people to conduct title searches and the costs associated therewith. In the meantime, as new information becomes available, the title industry, real estate professionals and legal counsel should be prepared to understand and debate the pros and cons of the new technology. One can only speculate as to the outcome and who will benefit. Stay tuned. One thing is certain – the license to provide an objective title policy to a buyer, seller, or lender is still a privilege in California, not a right.

[1] 2000-2018 International Risk Management Institute, Inc. (IRMI)

[2] http://www.naic.org/cmte_ex_stmwg.htm (2018)

[3] .Ibid

[4] March 3, 2018 Title News, official publication of the American Land Title Association, pp 11-13

[5] Minutes of the December 2, 2017, NAIC Title Insurance Task Force

[6] .Ibid

[7] .Ibid