Adapt or Perish! Fintech’s Impact on the Title Insurance Industry

The new normal

Fintech companies have found a new industry to disrupt…title insurance. The technological changes in the industry are being driven by the largest group of prospective homebuyers, millennials. They expect greater efficiency and convenience in their home-buying process, and finch companies rush in to fill the gap.

This is not a new trend for real estate. Not only has consumer expectations for faster, friendlier, and simpler interfaces in the sector changed, but also the role of the real estate agent has changed with companies like Zillow, Opendoor, and Redfin replacing some of the traditional services you would get from the agent.

Even on the mortgage side of the process, you find major disruptions by fintech. Just think of RocketMortgage and its impact on how consumers shop for a mortgage. Add to that the automation behind the scenes which have made it possible: eClosings, credit checks, auto-doc retrieval, document management, capture, and mortgage LOS to name a few. Now, title insurance is ripe for the same type of change…and it is coming sooner than you think.

Title Insurance Disruption is already here.

It actually has been happening already. In September of 2017, Title Source, the nation’s largest independent provider of title insurance, valuations, and closing services partnered with Quicken Loans and the eClosing platform company Pavaso to simplify the mortgage closing process for homebuyers across the country. Title Source has platforms to empower transparency by enabling online communication between the client, real estate agent, lender, and title agency.

In addition, new disruptive technologies on the back-end of the process will allow for simpler, safer, and faster interfaces with the consumer. Take, for example, SafeChain. In January of 2018, SafeChain, an Ohio-based company, developed fraud prevention software for title services professionals. Called SafeWire, the software helps real estate companies close faster while decreasing fraudulent liabilities faced by title services professionals.

SafeWire empowers title companies to complete wire transactions with maximum security. It digitally verifies the identity of every buyer and seller in a transaction, as well as ensures that the buyers and sellers own and control their bank accounts via an ACH transaction. Long term, they hope to enable consumers to be able to buy or sell real estate within 30 seconds with their blockchain solution.

In November of 2018, two of the biggest names in title insurance joined together to bring blockchain to the title industry. First American Financial announced that it is launching a shared blockchain system to be used in the title insurance process. The first company to sign to use First American’s blockchain system is Old Republic Title Insurance Group, the third-largest national title insurance underwriter. The blockchain system, which First American designed, is intended to facilitate the exchange of prior title insurance policies between underwriters that contribute to the system, First American said.

And in August of 2018, California Insurance Commissioner Dave Jones approved a license for Doma (States Title,) the first insurtech title insurer licensed and domiciled in California. Doma will use data-driven predictive analytics technology to predict the risk and severity of a title defect on a particular property, aiming to deliver title insurance more efficiently and at lower costs. In December of 2018, Doma announced it is joining with North American Title Group (NATG) and plans to combine part of NATG’s retail business and its underwriter with Doma.

Doma is joining a handful of startups, including OneTitle and Spruce, that are using technology to search records quickly and without agents.

Technologies with the greatest impact on title insurance

Blockchain-based Smart Contracts

Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network.

For the real estate industry, this means that smart contracts could be used in many ways. Lenders might use smart contracts to approve mortgage applications; title insurance companies could use it to search a property’s title and instantly issue policies. Closing officers might set up automatic escrow accounts after a deal is completed.

Smart contracts remove the need for intermediaries. While this is not a good thing if you happen to work in one of the areas that will be affected, such as title insurance, it is great for consumers and property owners who can cut out functionaries and reduce transaction costs.

eClosing and Remote Online Notarization

Remote online notarization allows a notary to notarize documents remotely over the internet via tamper-evident digital tools, sophisticated fraud prevention technologies, and live audio-video conferencing. Similarly, eClosing, the electronic execution of mortgage loan closing documents in a secure digital environment, is a faster and more efficient alternative to the traditional paper-based real estate closing.

eClosing and remote online notarization capabilities are also poised to make their mark in the industry. According to Mark Fleming, chief economist at First American, “34 percent of title agents and real estate professionals surveyed believe that remote online notarization and eClosings will have a large impact in helping home buyers close their transactions faster and more efficiently.”

Customer Service Chatbots

Chatbots are simple artificial intelligence systems that you interact with via text. Those interactions can be straightforward, like asking a bot to give you a weather report, or more complex, like having one troubleshoot your loan closing documents.

Chatbots can help title and escrow agents engage customers in real-time as they consider their title insurance options or are working through their closing.

Artificial Intelligence/Predictive Analytics

Predictive analytics uses data, statistical algorithms, and machine learning techniques to identify the likelihood of future outcomes based on historical data. The goal is to go beyond knowing what has happened to providing the best assessment of what will happen in the future. As we discussed earlier, predictive analytics is being used by a few title companies to predict risk and the severity of title defects on a particular property. The end result is title insurance is delivered faster and at a lower cost.

Blockchain

Title companies are using shared blockchain systems to facilitate the exchange of prior title insurance policies between underwriters that contribute to the system. This technology will allow much faster title searches and title commitments.

There’s been some talk over the idea that blockchain will make title insurance and title agents obsolete. This really depends on what type of technology becomes the norm for financial institutions and consumers. The reality is that the variation in land record-keeping standards and title insurance regulation from state to state would make a centralized and completely public national record-keeping system highly unlikely. Some hybrid systems between public and private will probably be more likely. Although some of the property and financial data will be available on this hybrid blockchain platform, not all will be. Some, particularly properties which do not have a clear title, will still need to go through the hands of title agents and real estate attorneys.

What can title company owners do now?

Adapt or Perish!

With mergers and acquisitions running rampant in the space, and new technologies streamlining processes and automation, CEOs are left with two choices: embrace technology or get ready to sell their company. If you don’t start finding ways to adapt to these new technologies, you will not survive. National players with lower operating costs, greater scale, and more efficiency will infiltrate your territory.

If you want to adapt, start by improving the foundational processes. Create an intelligent, paperless workflow. Connect with your title production system. Also, explore integrations provided by your TPS provider.

Embrace eSign, eClosing, and Remote Online Notarization. The entire real estate industry is changing…fast. You must be ready to respond to lenders requesting eSignature, eClosings, and remote online notarization for their platforms. Today’s consumers demand ease and efficiency. If you can’t meet their requirements, they will go elsewhere.

Streamline your title sourcing and production process. As market forces pressure for faster, more cost-efficient systems, those who streamline their operations will survive. Understand some of the available technologies such as OCR, BOTS, RPA, and AI. If you don’t have the resources to create these systems, partner with vendors who can build them for you.

Develop a digital marketing strategy

The way consumers shop for real estate has changed. Title companies that have a digital marketing strategy will be poised for future growth. You need to be where your real estate agents and consumers are. By strategically targeting them on these platforms, you gain brand awareness, trust, and a solid reputation. You also position yourself to drive qualified leads into your pipeline. Make sure your web presence (online and mobile,) your content (inbound) marketing, outbound marketing, and social media strategy is aligned with your sales goals and your brand.