The National Association of Insurance Commissioners has decided to ramp up its oversight of title insurers.

The problem stems from problems at small and regional title companies, not the four large title companies, according to Paul Bauer, a vice president and senior credit officer on the insurance team at Moody’s Investors Service.

Bauer, who covers three of the large title insurers, says the larger ones are more prepared to weather the current storm caused by the housing crisis than the small ones.

“They have more scale and more flexibility from a cost-management standpoint,” he says.

He adds that title insurers are “different from other [property and casualty] insurers because a lot of what needs to be done is expense management.”

The NAIC’s decision for increased oversight was made by the Title Insurance Task Force at the NAIC’s Fall National Meeting, which ended here Sunday.

The decision follows the failure of three title insurance companies so far in 2011.

The task force plans to work with other NAIC working groups to modernize solvency regulation of the industry. These efforts will include looking at recent industry failures, developing risk-based capital requirements, early warning tools, and risk-focused examination guidelines.

The core title insurance industry problem is that it “continues to deal with the aftermath of the great housing price bubble and its painfully slow deflation,” Bauer says in an April report.

He adds, “We expect title insurance companies to be challenged over the medium term by a shrinking revenue base and lower income due to a drop in mortgage refinancings accompanied by only a mild, if any, uptick in overall home-sale transactions.”