Williston Financial Group and its wholly owned subsidiary, WFG National Title Insurance Co., in June opened its national headquarters in Lake Oswego, Ore. WFG is currently licensed and operating in 33states nationwide. The company is a full-service provider of title insurance and real estate settlement services for lender, commercial and residential transactions. Patrick Stone, president and CEO of WFG, spoke with The Title Report recently about the launch of the new underwriter, what the vision was behind its development and the plans in place for the company that already employs 200 people in its six offices and is partnered with about 100 agents. Read on for the insight Stone shared on the company’s launch in the first of a two-part Q&A.
Q: Take me back to the beginning. When did you originally begin considering the possibility of launching an underwriter?
A: The first nickel of an idea probably started four or five years ago, but it was just a fancy at that time. It grew as I realized the industry wasn’t changing with the market, if you will. The one thing I’ve observed with this market contraction, more so than any other, is that the rest of the real estate services industry is undergoing some profound changes in the way they do business, the way they look at business and their long-term outlook toward the business. It struck me because of my various associations with the industry that the industry was not changing, it was contracting and reducing its expense exposure somewhat in ahistorical manner. I became increasingly aware of what I thought was a distinct opportunity to look at the business differently. So I probably got really serious about it a year and a half ago. When I made the decision to actually embark upon trying to find money and look seriously at acquiring an underwriter, I resigned from the board of First American and launched the effort.
Q: Like you mentioned, with the market being what it is today, and underwriting in general being a tough environment with regionals holding a minute share of the business and the Big 4dominating it, how did you come to be sure this was the move you wanted to make?
A: To give you perspective, I’ve been around the industry for 35 years. When I started, Pioneer National was the predominate company in the industry and we’ve gone through various companies that have been predominate in the industry. Market share is extremely fluid. It is dependent upon service, it is dependent on the energy and focus of the management of the companies involved and, in any case, the bulk of the market share always is agency-based. Most agents have more than one underwriter, so I would argue market share was probably the least of my worries or the lowest hurdle in terms of concerns.
Q: When you went through the development process, what was the vision that you had in mind and how have you worked to make that vision become a reality?
A: I do not think that 99 percent of clients can discern any difference between any of the major players. If you asked them to describe the difference between four of the major players, they would be hard-pressed to do so because the product and the pricing is essentially the same. We are a service industry. If you step back and get your corporate ego out of the way, and you say the client is not going to differentiate these companies based on products or pricing, how can you position yourself to be successful?
It struck me that one way you do it is by segmenting geographically, focusing on supporting agencies and having agents be a part of your distribution platform east of the Mississippi and focusing on having owned operations west of the Mississippi. You also must have a national lender platform because institutional business is becoming an ever-increasingly important part of the mix. So you need to be in that game. And then you should be trying to be a part of your clients’ team and using technology to facilitate the clients’ interface with your company.
I thought there was an opportunity to get in. This is a tremendous time to acquire companies. Obviously, you buy low and sell high, and it’s a wonderful time for making acquisitions. It struck me as an opportune time to enter the business, being able to buy at the low point or near the low point in the cycle and being able to segment the market in such a way that we’re participating the bulk of our agency effort in states with high splits, low loss ratios and agents that will welcome being a partner, and doing directs in states where you have automated title plants, good rate and regulatory environments and the ability to somewhat control your destiny because of the environment where you participate and have low-touch, low-cost production.
Q: Tell me about the moves you’ve made so far … the acquisitions and the team you’ve been able to put together.
A: We bought the two Transunion underwriters and we bought New Millennium Title Group. We are in serious negotiations about six other potential acquisitions. While it’s a good time to be a buyer, sometimes it’s not a good time to be a seller and we’re very respectful of trying to work a deal that makes sense for everybody involved. We hope to make additional acquisition announcements on a timely basis. In the interim, we’re building the agency.
Joe Drum is running our agency department. Joe worked with me before when I was at Fidelity and is a35-year veteran. Bill Moody is running New Millennium, which is our lender services group. Bill built Lender’s First Choice, has a banking background and is very cognizant of what lenders look for in terms of service and follow-through. Joe McCabe Jr. is our general counsel. Joe has been around the industry along time and was with Transunion when we bought it. Mike Gallaher is our CFO. Mike worked with us at Fidelity and was the CFO of United General Title Insurance Co. Marshall Haines is my COO and co-founder. Marshall came out of TPG Capital, which is a big private equity company. Before that, he was with Bain Capital. He is a very bright person who is a very sophisticated business modeler and financial professional.
Q: A lot of your team members you’ve worked with in one capacity or another over the years. Had you pinpointed some of them in your head before launching into this process?
A: I’ve been fortunate; I’ve worked with a lot of good people. And if and when some of these people are interested, I’d love to talk to them. I am very comfortable with our executive team. I’ve been around long enough that I know a lot of people. I genuinely like the business and the people in it. As opportunity presents itself, we will continue to grow.
Q: Speaking of growth, it seems you are well on your way. My understanding is you do intend to compete nationally, is that correct?
A: Yes, but maybe in a different approach than the other players. We’re licensed in 33 states and will be licensed in the 34th in about a week. We believe will be approved and licensed in eight more states by the end of the year and 49 of the 50 states by the end of next year. We will have a national platform. As I mentioned earlier, will really focus agency growth in areas where can be a good partner to the agent and the relationship is sustainable and profitable for both parties. We’ll focus our direct growth in seven western states — that is about 14 metropolitan areas that have automated title plants and environments we want to compete in. We’ll be national, but we won’t have infrastructure and people in all 50 states.
We will have minimal agency representation in every state, but the bulk of agents in select areas and our directs in select areas. We’ll have a national footprint and be able to service people nationally, but we won’t have the overhead or infrastructure cost that goes with just seeking market share or revenue growth. We’re more interested in margin and profitability.
Q: When it comes to attracting agents, how do you plan to communicate what will set WFG apart from other underwriters?
A: In this downturn, there was a kind of “throw the baby out with the bathwater” kind of mentality. The underwriters reacted to losses in a contracting market. In all fairness, I don’t want to criticize the underwriters. They were dealing with a huge problem that was hard to define. We want to know every single agent we sign. We want to regard every agent we sign as a partner. We want to have an understanding that it is a partnership and that partnership includes us trying to provide them with opportunity in the form of referrals, support and anything we can do to make them more effective and profitable, in exchange for which we want to have some transparency in the relationship, some honesty in the relationship and we want to go down the road together. That takes a form of commitment for both managerial, legal and other sorts of support, but it also means we are not going to compete with the bulk of our agents. We will not have owned operations in the same markets. We are more than happy to refer business to our agents. We are more than happy to facilitate our agents referring business out of their market.
I think what’s happened with some of the large competitors is they’ve shut the door on agents in terms of business they can send to their own operations or that they can control nationally. That’s not in our model. Everything is easy to talk about; the proof is in the pudding. I believe our model and our intent is to have the agents be an extension of us in a lot of markets and not a competitor.
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