What is title insurance underwriting?

Title insurance is among the least understood portions of the real estate transaction process. And the underwriting process is probably the least understood portion of the title business. What makes it so confusing is that the words “underwriting” and “underwriter” can be used in so many different ways. So lets take a quick look at just what exactly title insurance underwriting is.

The term “title insurance underwriter” can mean two things. It can mean a title insurance company itself. Or, it can mean an attorney who makes underwriting decisions on behalf of a title company, also known as underwriting counsel. To say a company “underwrites” a title insurance policy means that the company will be the one who pays out if there is a payable claim.  Title insurance underwriters are regulated in Texas by the Texas Department of Insurance and must meet certain stringent financial soundness standards.  Underwriters issue title policies either through “direct operations” or through independent Agents. Independent agents like us may issue policies on behalf of multiple different underwriters.

A company issues a policy only after it has made a decision that the risk it will take on as a result of issuing the policy is acceptable. The process of making this determination is called underwriting. Each underwriter has is own internal guidelines which it and its agents must follow in making underwriting decisions. However, because there are as many variables as there are different real estate transactions, title insurance companies employ underwriting attorneys who review transactions.  Their underwriting decision is dependent upon the specific facts surrounding the transaction. Underwriting counsel will determine on the behalf of the underwriter whether to issue a policy in a particular instance. If they determine no policy can be issued under the existing facts, they will often provide guidance on “curative” work that can be done to bring the facts of the transaction into allignment with underwriting guidelines.

One thing to keep in mind is that underwriting guidelines and underwriting decisions often vary from underwriter to underwriter. So, if one title company declines to issue a policy on a particular transaction, another title company might be willing to take the risk.