Monoline restrictions, with applications to mortgage insurance and title insurance

Insurance firms in the United States generally operate on a multiline basis, meaning that they provide coverage for two or more insurance lines, such as auto and homeowner insurance. Most states, however, require that firms offering mortgage or title insurance operate on a monoline basis, meaning that an insurance firm may provide coverage against only one type of risk. This paper investigates the conditions under which monoline restrictions represent efficient regulatory policy. Monoline requirements are an intriguing issue because multiline insurance firms receive the diversification benefit that the firm's capital is available to pay insurance claims on any of its lines. The paper shows, however, that the specific features of the mortgage and title insurance lines create a special case in which monoline restrictions may represent efficient regulatory policy.