This article outlines a transaction cost theory of ‘title insurance’ and analyses the role it plays in countries with recording and registration of land titles. Title insurance indemnifies real estate right holders for losses caused by pre-existing title defects that are unknown when the policy is issued. It emerged to complement the ‘errors and omissions’ insurance of professionals examining title quality. Poor organization of public records led title insurers in the USA to integrate title examination and settlement services. Their residual claimant status motivates insurers to screen, cure and avoid title defects. Firms introducing title insurance abroad produce little information on title quality, however. Their policies are instead issued on a casualty basis, complementing and enforcing the professional liability of conveyancers. Future development in markets with land registration is uncertain because of adverse selection, competitive reactions from established conveyancers and the ability of larger banks to self-insure title risks.
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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number
565.
Find related papers by JEL classification: G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies K11 - Law and Economics - - Basic Areas of Law - - - Property Law L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
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