If you have bought a house in the last decade, you likely started the process online. Perhaps you browsed for your future dream home on a website like Zillow or Realtor, and you may have been surprised by how quickly things moved from seeing a property to making an offer.
When you reached the closing stage, however, things slowed to a crawl. Some of those roadblocks were anticipated, such as the process of getting a mortgage, but one likely wasn’t: the tedious and time-consuming process of obtaining title insurance — that is, insurance that protects your claim to home ownership should any claims arise against it after sale.
For a product that is all but required to purchase a home, title insurance isn’t something many people know about until they have to pay for it and then wait up to two months to get.
Now, finally, a handful of startups are taking on the title insurance industry, hoping to make the process of buying a policy easier, cheaper and more transparent. These startups, including Spruce, States Title, JetClosing, Qualia, Modus and Endpoint, enable part or all of the title insurance buying process. Whether these startups can finally topple the title insurance monopoly remains to be seen, but they are already causing cracks in the system.
To that end, we’ve outlined what’s broken about today’s title industry; recent developments in technology and government that are priming the industry for change; and a synthesis of some key trends we’ve observed in the space, as entrepreneurs begin to capitalize on a tipping point in a century-old, $14 billion business.
Title insurance 101
To understand how startups are beginning to challenge title insurance incumbents, we need to first understand what title insurance is and what title companies do.
Title insurance is unique from other types of insurance, which require ongoing payments and protect a buyer against future incidents. Instead, title insurance is a one-time payment that protects a buyer from what has already happened — namely errors in the public record, liens against the property, claims of inheritance and fraud. When you buy a home, title insurance companies research your property’s history, contained in public archives, to make sure no such claims are attached to it, then correct any issues before granting a title insurance policy.