It’s just one of the bills that comes in during a real estate closing, the $700-or-so premium for the title insurance policy. And while much of the realty world saw its most dismal year in decades in 2011, title insurers didn’t get dinged very much at all.

Real estate sales volume in Massachusetts took a 6 percent dive in 2011, and mortgage volume fell right along with it. But the total amount of title insurance premiums written here dipped just 2.5 percent, from $211 million in 2010 to $205 million last year, according to the American Land Title Association.

Given the drop in overall volume, it points to a nice uptick in the average policy cost. That’s a pretty good story in terms of making the most for the owners of title companies. As a matter of fact, this story is all about making more for title insurers.

Massachusetts and Connecticut have long been a battleground for title firms looking for a better bottom line. It’s not because the New England states are so rich in real estate, but because of our arcane laws regarding who gets to sell title insurance.

In most of the nation, title insurers have agents, just like regular insurance companies do. These agents are salespeople – a fungible commodity. The title companies have a world of available talent from which to hire and train their sales force.

That’s not the case here. In the commonwealth, as in Connecticut, by law the only people who can be title agents are lawyers. Here we cling to the notion that it takes a trained legal eye to observe that the description of the deed has not changed from the last time a property was sold. Once or twice every decade, some insurer that’s going nuts over this limitation sues to get it overturned. They never win.

Going Direct

But that doesn’t mean that they can’t finagle around local custom and tradition. Although title insurers can’t use anyone other than lawyers as their agents here, there’s no constraint on them writing the policy directly. And since so many of the large insurers are working with big national lenders, they’ve set up systems that allow them to write lots and lots of direct insurance. It’s a practice that’s perking up their bottom lines.

In Massachusetts, First American Title is the Big Kahuna, taking nearly 34 percent of the market. But almost 7 percent of its business now comes from its direct channel, bypassing the Bay State’s real estate bar. The Fidelity family – which includes Fidelity Title, Commonwealth Land Title and Chicago Title – has 28 percent of the Massachusetts market. But it also sidestepped state lawyers to the tune of about 14 percent of its total premiums.

According to the American Land Title Association, only the very smallest insurers, with miniscule amounts of business in Massachusetts, didn’t write any direct premiums, with the exception of CATIC. That firm has about 7 percent of the market here, but it’s owned by attorneys, so it has no intention of adopting any kind of direct channel.

All told, title insurers took in just over $17 million in direct premiums in Massachusetts last year. And the best part is that writing title insurance is a highly lucrative business compared with other lines of insurance. With life insurance, for example, it’s a pretty good bet that every insured is going to make a claim. But with title insurance, as long as proper research is done, very few policies ever have to pay out. The profit margin on them can be enormous – and could be even better if not for the money paid out to the lawyers.

With such a limited pool of “agents,” title companies must richly reward those who write their policies. These days, it’s not uncommon for an attorney to keep 70 percent of the premium as his commission. But when the title firms write directly, all the money stays in their pocket. That means real estate counsel in Massachusetts missed out on nearly $12 million in compensation last year.

Now, lawyers need to make a living, too. And bear in mind that the legal fees many real estate attorneys charge for handling a closing is discounted because of the money they make on the title insurance commission. If they continue to get less and less commission, they’re just going to raise the fees they charge homebuyers.

Of course, that wouldn’t be such a problem if those homebuyers wound up paying smaller premiums for their title policies. But that’s not happening. The insurers are keeping the premium the same, and just keeping all of it for themselves. (The justification is that they are, internally, providing the same service that the real estate lawyer would have. So, basically they’re just paying themselves the commission).

That’s a good plan for insurers who have been having a hard time of it lately; or at least it’s good for the shareholders of those title companies. But it certainly seems like a path to higher real estate closing costs for consumers, especially as title companies continue to find ways around Massachusetts law, and Massachusetts lawyers.n

Vincent M. Valvo is CEO of Agility Resources Group.
Email: vvalvo@agilityresourcesgroup.com.