Title insurance startup Spruce raised $4.5 million in a Series A funding round from Bessemer Venture Partners, Omidyar Network, Third Prime Capital and other investors. The company, founded by finance entrepreneurs Patrick Burns and Andrew Weisgall, claims to offer cheaper and faster title insurance by using new technology to research and process contracts.
In a special report last year, The Real Deal broke down how title insurance firms collude to keep prices, and their profits, high. Firms tend to compete by wining and dining clients rather than by offering cheaper prices. In 2014, the industry made a net profit of $800 million on $12.2 billion on revenue.
“Why haven’t these companies kept up with the times, and applied modern technology to their operations? Here’s the problem, as Spruce sees it:
The work that goes into establishing that certainty costs money, so you would expect some of the premiums to go towards that. However, that’s not all that is going on—title companies are far less efficient than they could be at doing that work. The research, processing, escrow and closing that comprise a title company’s role in ensuring and insuring that a real estate transaction is legally effective are often extremely manual, paper based processes. That means they’re more costly than they need to be, more error prone, subject to increasing amounts of fraud, and provide a slower and more opaque process for borrowers than might otherwise be possible. Why haven’t these companies kept up with the times, and applied modern technology to their operations? Lack of incentive, of course.
Demand is guaranteed—mortgage companies require you to buy a policy, and realtors and lenders often direct you to one specific title insurance agent that would consider you a ‘captive customer’, leaving you open to paying more than you should for a worse experience than you deserve.
Spruce is in 11 states today, and it plans to expand to reach 24 by the end of next month. It’s targeting a fully nationwide service by the end of this year.
Spruce’s Cofounder Patrick Burns and COO Andrew Weisgall