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California's Department of Insurance is investigating real estate title insurers amid allegations in other states that some title insurance firms are using kickbacks to steer business their way.
Norman Williams, a spokesman for Insurance Commissioner John Garamendi, said the department "is aggressively investigating all broker activities, and that includes activities involving all lines of insurance, including title insurance."
The Denver Business Journal also reports that the Colorado Division of Insurance is preparing sanctions against nine real estate title insurance companies for allegedly paying kickbacks to large homebuilders in exchange for guaranteed business. Erin Toll, deputy commissioner of compliance for the Colorado insurance division, stated that California and Washington state are pursuing similar investigations.
The National Association of Insurance Commissioners (NAIC) is encouraging state insurance departments nationwide to investigate potential title-insurance kickback arrangements in their jurisdictions.
The looming Colorado sanctions could involve cease-and-desist orders and the filing of charges that could lead to fines and other penalties. Giving or receiving money in exchange for steering title insurance business to a particular insurer violates the federal Real Estate Settlement Procedures Act and many state laws, including California's.
"The average regulator would never know these alleged kickback agreements exist," Toll said. "That's part of our concern. They're not reported anywhere and are totally below the radar screen."
Fitch Ratings said it is closely monitoring potential effects of the title insurance market, "especially given the current widespread investigation of fraud and anti-competitive practices in the insurance industry as a whole," spearheaded by New York Attorney General Eliot Spitzer.
"Going forward, Fitch believes the title insurance industry will face grater pressure to modify compensation and other business practices that may be viewed as creating conflicts of interest," Fitch officials said.
The impact on individual companies under investigation is harder to predict, Fitch noted, since their names have not been released. "However, if these inquiries expand significantly and are concentrated in a small number of companies, individual company rating may be negatively impacted."
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