Friday, February 25, 2011

Title Insurance Markets in Everything

I'm drafting a report right now for work on a project on the title insurance industry that's been running for over a year. Title insurance is a funny business. It's a type of insurance you pay when you buy a house in the United States that insures against losses associated with challenges to or leins against the title to the property. Essentially the title insurer does a lot of background research on the title chain (the chain of ownership of the property) to make sure that everything is squeaky clean. But it's an odd sort of insurance in a couple ways. First, you only pay one up-front premium for the insurance. Second, only a small share of that premium goes towards covering losses (unlike other sorts of insurance, where the majority of the premium covers losses). Most of the premium goes towards costs associated with the title search process itself.

These idiosyncrasies (along with a few other market failure/competitiveness concerns I won't get into here) have turned a lot of people against the title insurance industry. Lots of people feel like something is amiss, and the fact that it's hard to shop around for title insurance doesn't make people feel any more assured.

Anyway, what's been interesting to me in writing up the findings is that I'm turning up other instances where title insurance is emerging. Title insurance started in the U.S. in the 1800's to clarify property disputes. These sorts of disputes weren't new to America. They plagued a lot of land speculators in the late colonial period and early republic who held contradictory titles to land. Two other industries with the same sorts of ownership chain complications have apparently also picked up the practice: art, and intellectual property (although this is just a proposal for intellectual property... I'm not sure if it's actually used).

Title insurance for art makes intuitive sense. You hear all the time about fine art being stolen and resold. It's also auctioned off, perhaps from an estate, and if there is something wrong with the way a will is executed that can introduce competing claims. Not to mention the fact that some fine art simply has a long title chain, and the longer the chain, the higher the likelihood of mistakes or counter-claims emerging. And note that this isn't an issue of insuring a valuable piece of property in case it is destroyed or stolen - this is insuring against losses if someone emerges and asserts that it's not even your rightful property.

The intellectual property case is even more intriguing. I don't know much IP law, but I know you have to cite prior patents that contribute to your invention, and of course it has to be your original idea. If your intellectual property rights are subsequently challenged by another inventor, you stand to lose a valuable asset. So title insurance here makes sense, and it's even more tricky than art or real estate. There is no chain of ownership for intellectual property - there's a whole range of prior inventions that a title insurer would have to be familiar with and scrutinize. I'm sure this is something patent attorneys already do, of course. What's original is the idea of insuring the title to the invention - insuring the risk that the patent attorney did not properly do his search.

What other goods or services would benefit from the emergence of title insurance? Can you think of any?

1 comment:

  1. Not answering your question, but the subject of title insurance is certainly interesting. Two anecdotes:

    1) A previous girlfriend of mine's family were (are?) of Polish aristocratic lineage. With the communist regime seizing all private assets in the middle of the 20th century they had to flee the country, leaving behind some tremendous assets in the process (in other parts of Europe too). They still hold the title deeds to some extremely valuable properties along the Dalmatian Coast for instance. They have been going through legal channels to reclaim these, but - concerns about corruption aside - it's a hideously expensive process. Still, old family friends of theirs recently succeeded, among other things, in recovering an 80-room palace. Cha-ching... pay day!

    2) You may have heard this urban legend...


All anonymous comments will be deleted. Consistent pseudonyms are fine.