Newspaper article The Florida Times Union

CALIFORNIA WANTS MORE ACTION FROM FIDELITY; Company Says They Have Stopped Using Reinsurers, but State Wants to See Drop in Cost of Title Insurance

Newspaper article The Florida Times Union

CALIFORNIA WANTS MORE ACTION FROM FIDELITY; Company Says They Have Stopped Using Reinsurers, but State Wants to See Drop in Cost of Title Insurance

Article excerpt

Byline: TIMOTHY J. GIBBONS, Times-Union staff writer

Although officials at Fidelity National Financial said they have stopped a practice that the California insurance commission referred to as "commercial bribes," the state said it wants to see more action, including a drop in the cost of title insurance.

Jacksonville-based Fidelity National -- one of the three companies that make up three-quarters of the title insurance market in California -- was blasted by Insurance Commissioner John Garamendi Tuesday for setting up companies that he said have been used to give money back to builders that referred customers.

It is against federal law, as well as the law in many states, to offer anything of value for title insurance business.

Fidelity stopped using the reinsurance companies in the past few weeks, said Peter Sadowski, executive vice president and general counsel for the company, following an investigation by the Colorado Division of Insurance, but California said its investigation will continue.

"We need a little more evidence than a press release that this has stopped," said Norman Williams, a spokesman for Garamendi. "The commissioner definitely wants rates to come down to a level where they meet the needs for title insurance and nothing more."

Garamendi accused the title insurance companies of overcharging consumers and then giving that money back to home builders. To do that, he said, Fidelity and the others used "captive reinsurers" to funnel the payments.

Reinsurance is used throughout the insurance industry to spread the risk that an insurance company faces; the insurance company basically takes part of the premium paid by the policy holder and uses it to buy additional insurance.

In this case, the title insurance companies purchase the reinsurance from firms owned by builders and others who had referred homebuyers to them. These firms are "captive," the commissioner said, because they only do business with their parent company, such as the home builder.

However, Garamendi said, there is no need for reinsurance -- few title insurance policies ever have to pay claims -- so that money remains with the parent company. …

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