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A Transaction Cost View of Title Insurance and its Role in Different Legal Systems

  • Benito Arruñada

    (Department of Economics and Business, Universitat Pompeu Fabra, Barcelona)

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 U.S. 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. The Geneva Papers on Risk and Insurance (2002) 27, 582–601. doi:10.1111/1468-0440.00194

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Article provided by Palgrave Macmillan & The Geneva Association in its journal The Geneva Papers on Risk and Insurance.

Volume (Year): 27 (2002)
Issue (Month): 4 (October)
Pages: 582-601

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Handle: RePEc:pal:gpprii:v:27:y:2002:i:4:p:582-601
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