Something Everyone Should Know – by Jonathan Yasko
If you have worked in the United States, you may have heard about the 80/20 Rule. Quite simply put, the 80/20 rule is defined as; 80 percent of your revenue comes from the top 20 percent of your clients. Most “for profit” organizations focus on that top 20%, meanwhile neglecting or ignoring the remaining 80%.
Ladies and gentlemen, the title insurance world is no different. The real estate collapse has forced the shutdown of many Title Insurance Underwriters, while the remaining Underwriters had no other choice but to increase their requirements for agents seeking an appointment with them. Now, you factor in the American Land Title Association’s Best Practices, followed by the soon to be released “Final Rule” by the Consumer Financial Protection Bureau and the stakes become that much higher.
Almost all Underwriters must subscribe to the same 80/20 rule, simply because of how our business is structured. Let me explain why.
For many years, Southern Title Insurance Corp., the former Underwriter that I worked for, declared they did not have any net remittance requirements. Although that statement may have been true in the past, as years ticked by and new regulations came about by the State and Federal level, we found ourselves forced to review what each agent was producing and ask the most important question, “is this agent worth keeping?” We could no longer continue on as “business as usual” because of the new requirements that must be supported by underwriting staff, but more importantly because of the claims produced and heavy expense of agent auditing.
At this point, it should not be a shocker as to the reason the industry as a whole got to where it did. Simply put, there were a few bad apples that ruined it for everyone. People were flocking to this industry that had no business being a part of it. Those two rolled up together produced a sharp increase in claims experienced by all the Underwriters. Even if a legitimate claim rolled in on your agency and it exceeded what you produced in a year, more than likely you were cancelled.
If you were a part of our previous Entrust Educational Webinar Events, you heard how there were approximately 91 Underwriters in the US in 2008, in June of 2010 this amount decreased to 54 and today there are 43.
So with low revenues and high claims, the business model itself was placed under a microscope. The entities looking through the microscope are different State’s Departments of Insurance, Lenders, and of course, the Federal Government. All of them basically have come to the conclusion that the current business model must change. Ladies and gentlemen, you now find the title industry moving towards the property and casualty business model.
All of the outside entities are now placing a tremendous amount of force and leverage on the remaining existing Underwriters. In some cases, the Lenders themselves have started to be proactive by only accepting the “Big 4” title insurance policies. So, if you are an agent or attorney and are writing on a “non-Big 4” Underwriter, chances are you are going to have to give the deal to someone else who can, or otherwise lose the deal entirely. In addition, the local State’s Department of Insurance are now placing specific, onsite audit requirements by the Underwriter. Again, this demand only increases what the agent must produce to maintain an appointment with an Underwriter.
The Underwriters are now finding themselves under this pressure and in often cases, pressure by stock holders. Therefore, with a limited budget and all expectations on the next quarterly earnings report, the focus is now on who can make them the most money with the least amount of cost. The demand is on maintaining and signing large volume agents (i.e. the 20% group receiving all of the focus by Underwriters). The remaining, lower-half 80% are the ones who are ignored and neglected because the same amount of effort is used to review a $10K agent as a $100K agent. So, the rule of thumb is, why waste time on a small to mid-size producing agent, when the effort should be spent on bringing on board large agents.
The same argument is made regarding claims. Let’s say there are two agents, one that remits $10K per year and the other that remits $100K per year. A legitimate title claim comes in for $50K. This claim would be repaid easily by the large agent, but it would take years for the small agent to cover the costs. This is another reason why the net remittance requirements are continuing to go up all over the country.
If we continue down this road, what you are going to see is large, national Underwriters and large, national agents. The ones most affected by the way things are trending are the sole practitioner attorneys, law firms that conduct real estate closings as an ancillary part of their practice and the “mom & pop” title companies.
While at times it may seem like the large agents makes up the majority, in fact it is the opposite. The small to mid-size agents are the majority and often times they are the ones getting neglected or cancelled.
So if you are an agent, sole practitioner attorney, or law firm not wanting to worry about net remittance requirements, please take a look at our Nexus Program and how it can make a dramatic impact on your business. We are now accepting applications in Tennessee, Louisiana, Mississippi, Alabama, Georgia and Florida.
Let Entrust be your employee.