This commentary originally appeared in The Monitor on June 6, 2016
Here’s an old adage that boldly claims that “everything is bigger in Texas.” This, of course, is false but Texans need not worry because bigger does not always translate to better. The government’s role in regulating the free market is an example of something that has remained small, and allowed Texans to stave off signficant effects of the Great Recession.
However, in the midst of Texas’ smaller government environment, the title insurance industry breaks from tradition, boasting one of the most regulated markets in any industry in the country.
While title insurance is an important service, providing assurance to real estate buyers in the case of defective deeds, that doesn’t mean that big government is needed to make it work. Yet, competition and the benefits it brings are almost nonexistent in this market; the Texas Department of Insurance sets both the price and coverage of residential and commercial title insurance.
By requiring the purchase of comprehensive, one-size-fits-all title insurance policies at a fixed rate, Texas consumers are unable to shop around for better policies and the most competitive prices. According to a 2011 LBJ School of Public Affairs study, this results in Texans paying some of the highest rates for title insurance in the country.
The reason for the lack of competition and high prices can be found in the Texas Insurance Code, which states: “The purpose of this title is to completely regulate the business of title insurance on real property.”
The industry claims this pervasive regulatory system is necessary to protect private property rights. However, across the country people buy and sell homes, businesses and other types of property in states with far less regulation of and lower prices for title insurance. None of these states suffer any major problems when it comes to protecting property owners from title defects.
Nor do they suffer from the high prices that Texas consumers are forced to pay for a product that has become increasingly cheaper to produce. While searching for title defects at one time was a labor intensive process, technological advances have considerably decreased the amount of work involved. Yet consumer prices have decreased far less than industry costs.
Texans understand this. A recent poll showed that 91 percent of Texans agree that since they can shop around for automobile and home insurance, they should be able to shop around for the best deals on title insurance.
What can be done about the lack of competition inflating rates in the title insurance industry?
We should treat title insurance just like other forms of insurance coverage in Texas by introducing competition into the title insurance market. The same file-and-use system that governs automobile and homeowners insurance would lower prices and allow consumers to choose from coverage plans that were more tailored to their specific needs.
Not only would homeowners benefit from this change, but the decreased cost of commercial title insurance would make Texas a more attractive place to do business and result in a stronger economy.
Texas has maintained its place as an economic powerhouse despite the recession through its willingness to limit the government’s role in the economy. The resulting competition has been an essential component to our successes, forcing companies to devise new ways, e.g., innovation, lower prices and better products, to attract — and benefit — customers.
There is no reason to exempt any industry from having to compete and focus on consumers. Texas should bring the many benefits of competition to the title insurance market.
Bill Peacock is vice president for research and director for the Center for Economic Freedom at the Texas Public Policy Foundation, a nonprofit, free-market research institute based in Austin. He may be followed at @BillPeacock3.
Ashton Moore is a research associate at the Texas Public Policy Foundation.