Industry news

Average Title Insurance Claim Cost for Fraud and Forgery is $143,000

ALTA Industry News

Fraud and forgery claims represent 21% of the total dollars spent by title insurers on claims expense and losses, with an average claim cost of over $143,000, according to a new independent analysis conducted by global consulting and actuarial firm Milliman. Including fraud and forgery, the analysis found nearly 30% of title insurers’ losses and claims expenses arose from title problems not discoverable from a public records search. 

The study examined over 127,000 claims associated with policies issued between 2013 and 2022, identifying key sources of title insurance claim costs throughout the decade. 

“The evidence is clear: expert title professionals do so much more than just scan public records or push a button to secure property rights,” said Diane Tomb, ALTA’s chief executive officer. “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. This analysis highlights the significant risk exposure presented by any waiver of title insurance policies on loans purchased by the Government-Sponsored Enterprises or from any unregulated alternative product that does not provide comprehensive coverage against nearly a third of all claims.” 

The types of claims represented in the analyzed sample include the following categories used by the industry to categorize claims:

  • Basic Risks: 24.0%. Basic risks including fraud, forgery, competency, capacity, authority of parties, undisclosed heirs, marital rights and assumed risks (e.g., access, zoning, building permit violations).
  • Special Risks: 21.0%. Special risks include mechanics’ liens, subordination of prior interests, affidavit or indemnity relied upon and underwritten risks (e.g., mortgages, judgments, and liens other than mechanics’ liens).
  • Escrow/Closing Procedures: 13.7%. Escrow/closing procedures include Insufficient or improper instructions, instructions not followed, improper payment or failure to make payment, closing protection letters and failure to complete post-closing responsibilities.
  • Examination and Opinion Irregularities: 11.9%. Examination and opinion Irregularities including unforeseen risks, irregular omissions and failure to follow established procedures and policies.
  • Apparent Non-Covered Claims: 8.0%. Apparent non-covered claims including claims outside insuring provisions, claims within preprinted exclusion or exception, and claims within special exception.
  • Endorsements, Title Plant, Search & Abstract: 7.8%. Endorsements, title plant, search and abstract including take-off of public records, posting, searching irregularity and abstracting irregularity.
  • Taxes and Special Assessments: 7.0%
  • Survey-Inspection/Description Matters: 5.2%. Survey-inspection/description matters including incorrect survey or inspection and incorrect description used or furnished.
  • Typing or Policy Review: 0.9%
  • Stakeholder/Interpleader Cases: 0.3%
  • Disputed Procedure (Judicial/Non-Judicial): 0.2%. Disputed procedure (judicial/nonjudicial) including foreclosure and government forfeiture

Unlike other lines of insurance, title professionals perform significant curative work upfront to resolve title defects before the transfer of property ownership rights—approximately 22 hours to close a standard transaction and 45 hours for more difficult transactions (which represent 36% of all transactions), according to a recent study by ndp | analytics. Additionally, when claims arise, title insurers are there to resolve those claims for the policyholder and defend their property interests. In 2022 alone, insurers paid out $596 million in claims. 

Other key findings from the analysis include:

  • Fraud and forgery claims are among two of the top three leading causes of loss and are five times more costly (at over $143,000 in total average claim costs) than all other claims, which average over $26,000.
  • Fraud and forgery claims are on the rise due to threats from cybercrime, rising from 19% of total reported claims in the category of basic risks between 2013 and 2020 to 44% of claims within that category in 2022 alone.
  • For claims on owner’s policies only, the average cost of fraud and forgery claims is more than $100,000, while the average claim cost for all other claims is more than $27,000.
  • For claims on Loan policies only, the average cost of fraud and forgery claims is more than $194,000, while the average claim cost for all other claims is more than $23,000.

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