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Fraud, forgery claims are costliest expenses for title insurers

Fraud and forgery claims represented more than one-fifth of the total dollars spent by title insurers on claims expenses and losses over the past decade, according to a study conducted by Milliman and commissioned by the American Land Title Association (ALTA).

Between 2013 and 2022, title insurers recorded 203,181 claims for policies written during that time, and they paid out $4.4 billion in claims related to losses and loss expenses. The costs associated with fraud- and forgery-related claims represent 21% of that total. On average, fraud and forgery claims cost title insurers more than $143,000 per case, while all other claims cost an average of $26,328.

Released on Monday, the study was ordered by ALTA and conducted independently by consulting and actuarial firm Milliman. The study examined 127,000 claims associated with policies issued between 2013 and 2022, and it delved into the most common sources of title insurer losses and claims expenses throughout the decade.

The analysis divided claim types into 11 categories. The most common category was “basic risk,” which accounted for 24% of all claims and included things like fraud, forgery, undisclosed heirs, marital rights and competency.

Other popular categories included “special risks” (21% of all claims), which includes things like mechanics’ liens and subordination of prior risks and underwritten risks; escrow and closing procedures (13.7%), which includes improper instructions, improper payments, failure to make a payment and failure to complete post-closing responsibilities; and “examination and opinion irregularities” (11.9%), which includes things like irregular omissions and unforeseen risks.

The rest of the analyzed claims were either “apparent non-covered claims” (8%); “endorsement, title plan, search and abstract claims” (7.8%); “taxes and special assessment claims” (7%); “survey-inspection/description matters” (5.2%); “typing or policy review” (0.9%); “stakeholder/interpleader cases” (0.3%); and “disputed procedure” (0.2%), which includes things like foreclosures and government forfeitures.

In addition to being the costliest expenses for title firms, fraud and forgery claims are also on the rise. Between 2013 and 2020, they represented 19% of all claims in the basic risk category, but rose to 44% in 2022 alone.

In total, Milliman found that 30% of all title losses and claims expenses came from title problems that could not be uncovered by a public records search, which includes things like fraud, forgery and escrow/closing procedures.

“The evidence is clear: expert title professionals do so much more than just scan public records or push a button to secure property rights,” Diane Tomb, CEO of ALTA, said in a statement. “With the cost of fraud and forgery claims averaging more than twice the national average salary in the U.S., the risk of not purchasing a title insurance policy is far too high.”

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