Senate Bill S38

                                
 
BILL NUMBER: S38

SPONSOR: HOYLMAN
 
TITLE OF BILL:

An act in relation to establishing a temporary task force to examine and
make recommendations upon the establishment of a public title insurance
carrier; and to provide for the repeal of such provisions upon the expi-
ration thereof

 
SUMMARY OF SPECIFIC PROVISIONS:

Section 1 of the bill establishes a temporary task force within the
Department of Financial Services to examine and make recommendations on
the establishment of a public title insurance carrier. The task force is
to be comprised of nine members, including: the Superintendent of the
Department of Financial services (or her designee), four members
appointed by the Governor, two members appointed by the Senate Majority
Leader, and two members appointed by the Assembly Speaker.

Section 2 of the bill states that no task force member shall be a
current or former employee of the title insurance industry.
              

Section 3 of the bill states that members of the task force shall
'receive no compensation for their services, but shall be reimbursed for
actual and necessary expenses.

Section 4 of the bill establishes that the Superintendent of the Depart-
ment of Financial Services or her designee shall be the chairperson of
the task force.

Section 5 of the bill provides that any vacancies on the task force
shall be filled in the same manner provided for in the initial appoint-
ment.

Section 6 of the bill authorizes the task force to hold public hearings
and meetings to enable it to accomplish its duties.

Section 7 of the bill directs the stakeholders, including the title
groups, real estate industry, and institutions, government entities
necessary.task force to consult with relevant insurance industry,
consumer advocacy any other organizations, educational or individuals
the task force deems

Section 8 of the bill directs the Department of Financial Services to
provide the task force with such facilities, assistance and data as will
enable the task force to carry out its powers and duties.

Section 9 of the bill establishes the purposes of the task force.

Section 10 of the bill requires the task force to complete, within one
year, a report on its findings, including any recommendations for legis-
lation or regulations, and to submit such report to the Governor and the
Legislature.

Section 11 of the bill is the effective date.

 
JUSTIFICATION:

Title insurance policies insure or guarantee property owners and mort-
gage lenders from financial losses incurred as a result of future claims
of any unknown defects in the title to the property at the time of the
sale. Unlike other forms of insurance, which generally protect the poli-
cyholder against an unknowable future event, title insurance protects
against events that have already occurred. In most instances, the cost
of title insurance is added to the closing costs paid by the new home-
owner, who will usually pick up the cost of a lender policy protecting
the bank through which they've secured a mortgage, as well as an owner's
policy to protect themselves.

In 1987, Iowa became the first state in the U.S. to create a state-oper-
ated title insurance issuer, the Iowa Title Guaranty. The Iowa Title
Guaranty is the only title insurance entity entitled to do business in
that state. As a result, title insurance in Iowa is relatively low: a
flat rate of $110 for a residential purchase up to $500,000, while in
New York the cost of title insurance on a $500,000 home is around
$2,700, among the highest rates in the nation.

1.

According to the Department of Financial Services, in 2016 title insur-
ance companies in New York wrote over $1.1 billion in premiums - almost
10% of the national market for title insurance. However, only about $51
million of the premiums written in 2016 were paid out in claims or loss-
es to the insurance companies (a loss ratio of only 4.65% of total
premiums). The remaining 95% of premiums went toward the expenses and
profits of title insurance companies, four of which control 91% of the
market in New York State. As a comparison, the loss ratio for health
insurance in New York is capped at 82%, meaning only 18% of premiums in
that industry go toward expenses and profit.

2

An investigation commenced by the Department in 2012 reviewed the
expenses of the title insurance industry and the impact on consumers'
premiums. The investigation found "significant expenses by both title
insurers and title agents that were being spent on improper inducements
to get business," including millions of dollars on tickets to sporting
events, lavish meals, strip clubs, and gifts.

3

The Department subsequently issued regulations intending to rein in the
unscrupulous and unethical practices in the title insurance industry
uncovered by its investigation, but those efforts have faced court chal-
lenges that make the future of the regulations uncertain.

Given the nature of title insurance and the out-of-control costs faced
by consumers in our state, New York should explore Iowa's lead in estab-
lishing a public agency or authority to be the exclusive means of guar-
anteeing title in the state. This bill would establish a Task Force to
examine the issue and make recommendations to the Governor and Legisla-
ture within one year of its findings. Sources:

1 Goldmacher, Shane. "New York's Hidden Home Buyer Closing Costs:  Luxu-
ry Boxes and Mint Mojitos." New York Times (Jan. 29, 2018). A vailable
at:  nytimes.com/2018/01/29/nyregion/title-insurance-new-york.html.
2 and

3 Testimony of Dept. of Financial Services Superintendent Maria Vullo
fora public hearing: An Examination of Recent Title Insurance Regulation
in New York State (Jan. 12, 2018). Available at:
dfs.ny.gov/about/statements/st1801121.htm.

 
PRIOR LEGISLATIVE HISTORY:

S.6850 of 2019-2020 (Hoylman): Died in Insurance

A.9023 of 2019-2020 (Simotas): Died in Insurance

 
FISCAL IMPLICATIONS:

To be determined.

 
EFFECTIVE DATE:
This act shall take effect immediately and shall expire and be deemed
repealed sixty days after transmission of the report of the findings of
the task force to the governor, the temporary president of the senate
and the speaker of the assembly, as provided in section ten of this act.
Provided, however, that the commissioner of the department of financial
services shall notify the legislative bill drafting commission upon the
transmission of the report of the findings of the task force, as
provided in section ten of this act, in order that the commission may
maintain an accurate and timely effective data base of the official text
of the laws of the state of New York in furtherance of effectuating the
provisions of section 44 of the legislative law and section 70-b of the
public officers law.