Review of Industrial Organization (2006) 28:83–108 © Springer 2006
Monoline Restrictions, with Applications
to Mortgage Insurance and Title Insurance
Haas School of Business, University of California, Berkeley, CA 94720-1900, USA
Abstract. 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 cov-
erage 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 cre-
ate a special case in which monoline restrictions may represent efﬁcient regulatory policy.
Key words: Insurance, monoline restriction, mortgage insurance, title insurance.
Monoline insurance ﬁrms sell only a single insurance line, while multiline
ﬁrms sell two or more lines. Most states in the United States (US) impose
mandatory monoline restrictions on certain insurance lines, including mort-
gage, title, and surety insurance.
The primary effect is that a monoline
insurer can apply its capital only to pay claims against its single insurance
line, while a multiline ﬁrm can centralize its capital to pay claims on any
of its lines.
The goal of this paper is to investigate the conditions under which mon-
oline restrictions represent effective regulatory policy. This is an intriguing
question because a multiline insurance ﬁrm receives the diversiﬁcation ben-
eﬁt that its capital is available to pay claims on any of its lines. Indeed,
Following the 1945 McCarran–Ferguson Act, all US insurance regulation is ceded
to the states (Danzon, 1992). Monoline restrictions for mortgage insurance and title
insurance are included in the “model codes” developed by the National Association of
Insurance Commissioners, on which most state insurance laws are based.