Demotech, Inc. has concluded its 2020 escrow theft and defalcation prevention measures review.
Demotech requests information from title underwriters every year, and the company uses this information to assign each company a Financial Stability Rating.
According to the report, 88 percent of regional title underwriters conduct agent reviews at least once a year. Ninety-three percent conduct a periodic reconciliation of escrow; 73 percent conduct a probability review of their agency base.
From July 1, 2019 through June 30, 2020 only four defalcations were discovered by regional underwriters. Over 2.6 million policies were written in 2019.
The report defines escrow theft as “when someone misappropriates funds held in a fiduciary capacity.” It said the most common form of escrow theft happens on the agent’s side.
Given the amount of money involved and how much of the industry is based on trust and reputation, it makes sense that 93 percent of underwriters perform escrow reconciliations often. Seventy-eight percent of those surveyed also indicated they check the balance of the escrow accounts of the appointed agents “at least quarterly.”
The agent hiring process was a major topic in the survey.
While 93 percent indicated they have a formal or distinct process for reviewing agencies prior to employment, only 78 percent said they conduct a background check on agents.
The same amount indicated they perform a Google search of potential agents; 75 percent indicated that they perform a credit check of potential agents.
Eighty-three percent said they ask agents for a sample of their work, then complete an independent review of the agent’s work. Seventy-eight percent indicated they conduct a committee review of the potential agent.
After hiring the agent, 88 percent of underwriters conduct a review at least once a year, while 45 percent go so far as to perform a review every single month. Sixty-eight percent of those that said they perform reviews said they conduct reviews with a committee.
The full report also discusses cyber security, software issuance, mediation procedures and bonds and E&O coverage.