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On Feb. 5, the Texas commissioner of insurance adopted a new rule relating to the practice of rebating in the title insurance industry. The rule goes into effect April 1, and will profoundly impact the way title insurance is marketed to lenders, realtors, construction companies and other entities that have traditionally steered consumers to a particular title agent or underwriter. It also may lead to future reductions in title insurance premiums. Because title insurance is completely regulated in Texas by the Department of Insurance, title agents and underwriters cannot compete for business based on price or the type of coverage offered. The forms and premiums are uniform throughout the state. Also, the typical title insurance consumer only purchases title insurance a few times over the course of a lifetime. Consumers often can’t make an informed choice among the various agents and underwriters; they don’t go through the process often enough to meaningfully compare the level of service, speed of results or other factors that distinguish various agents and underwriters from one another. That is why title companies look to “producers” such as lenders, realtors and construction companies to refer customers to a particular title company. To foster a good relationship with one or more producers, title companies often are under pressure to provide to those producers incentives in the form of printing services, advertising, open houses, trips and other “things of value.” The expenses generated by these incentives, promotions and enticements served to inflate the operating expenses of title agents and underwriters, which were used to set the rates for title insurance premiums. The Texas Legislature, the insurance department and the real estate industry have wrestled with title insurance rebates, or “kickbacks,” for years. Article 9.30 of the Texas Insurance Code prohibits giving or receiving a thing of value contingent upon the referral of title insurance business. Title Insurance Bulletin No. 158 attempts to set out a laundry list of prohibited activities. Recent enforcement actions by insurance department legal staff have resulted in stiff fines for rebating, but the cases are sometimes difficult and time-consuming to prosecute. But enforcement actions should soon become easier to prosecute. The days of free tote bags and cocktail hours are numbered. New Procedural Rule P-53 provides that no person doing title insurance business shall, directly or indirectly, pay for or subsidize advertising or promotional materials or activities of any producer in a position to make a referral of title insurance business. The rule bans the handout of many goodies. Title companies can’t conduct, sponsor, promote or pay for any part of an event benefiting a producer � this means no more open houses, holiday parties, receptions and convention events for the businesses that drive customers to title companies. Title companies also can’t provide or furnish prizes, food, beverages, gifts, decorations, entertainment or professional services. The list doesn’t stop with food and fun. Title companies can’t provide producers with furnishings, postage, office supplies, electronic or hard copy documents or media, computer hardware or software, telephones, telephone systems, copiers, fax machines, office equipment, vehicles, administrative, management or staff services, rental space or office facilities. Advertising is another casualty of the new rule. A title company will not be allowed to advertise any particular piece of real property or group of properties in either traditional or electronic media. Article 9.30(B)(6) of the Texas Insurance Code provides an exception for legal, educational and promotional activities not contingent upon the referral of title business. New Procedural Rule P-53 incorporates this exception, provided that the title company prominently sets out its name and business symbol on the cover and first page of the materials, and provided that the materials don’t use the name or symbol of a producer. Even then, a title company should not underwrite or sponsor general education seminars for realtors which are designed to defray the normal costs of a realtor’s MCE requirements. The title company should charge the going market rate for that sort of seminar. If a meal is provided, the cost of the meal should be reflected in the admission price charged to the attendees. The new rule also addresses “blended” rates in multistate transactions involving Texas property. If the title insurance premium for the property outside Texas is deeply discounted to attract the Texas piece of the title insurance business, the insurance department will also treat that as a prohibited rebate. Penalties are stiff: up to $10,000 for each violation and for each day of violation. Penalties apply to the giver and the recipient of the rebate. Observers anticipate that, as the new rule eliminates large “marketing” expenses for title agents and title insurers, expenses that formerly were included in premium rate calculations will likewise be reduced, thus leading to lower title insurance premiums for all Texas consumers. Robert R. Carter Jr. is the deputy commissioner leading the Title Insurance Division of the Texas Department of Insurance. He is an honors graduate of the University of Texas School of Law.

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