An underwriter of title insurance is primarily an evaluator of risk.
Given that the insurer prefers in the long term to remain in business at a profit, and to avoid loss, and also the fact that compliance with statutory requirements is essential for its license to operate, the task of the underwriter of title insurance is to identify and quantify risk and to apply a value to the particular object of the policy.

Many variables are considered in this analysis, not the least of which are the features of the property itself, and in particular those features that lend themselves to interests being created upon the title by other potential individuals.

Any current interests are clearly given preeminent recognition, but also the potential for further interests of a diverse nature and origin. For example, if the risk of claims of inheritance abound, this would necessarily be due to a particular feature of the ownership, namely, that of an owner advancing toward their twilight years, and leaving behind numerous potential beneficiaries to their estate.

The presence of many release notes of mortgage will serve to confirm the clearance of title, and are to be taken at first instance as supporting the title.

However, the contingency for fraud is rarely ever quantifiable, and is only able to be based on long term shifts in social trends and behavior.

Policy & Procedure

For this reason the title insurance underwriter often chooses to price a standard title insurance policy, which is contemplative of numerous exclusions to limit coverage. From this premise the policy holder is then able to extend cover which is provided at a commensurate cost.
Any predictions on the expense to the insurer can only be academic at best, and often the case is that the contingencies of real life can often out perform a mathematical model.

Still, regard is certainly had to the cost of potential litigation to defend the title insured against, and for title insurers, while they enjoy a far smaller claim rate than made by policy holders of other insurance policies the incidents of claim tend to impose considerable expense on the insurer when they do occur.

This is the nature of insurance however, as profit is made by pooling risk together into a portfolio, and achieving an economy of scale as to the probability of all policies suffering claims at one time being miniscule.
Still, reality remains at a constant and the chance of the unlikely occurring is never totally extinguished.

This is the reason that underwriters of title insurance follow strict procedural guidelines when quantifying risk and calculating the premium charged, as a theoretical edge needs to be retained in order to remain in profit.

Often underwriters will refuse to accept a risk, but in the title insurance industry, insurers prefer to focus their resources into preventative measure such as meticulous title searching mechanisms and high quality information delivery, which is vital for the protection of their investments.

If preventative measures are effective, the volume of claims will remain minimal to the satisfaction of the policy holder and also the insurer.
The aim of a title insurer is to resolve problems with title, and if due diligence is observed with expertise, care and professional skill; the title insurance underwriter’s market share will be maintained as a matter of course.

Resources:

http://www.christianet.com/homeinsurance/titleinsuranceunderwriters.htm

http://www.thefund.com/

http://www.ezine-writer.com.au/articles/j151936.aspx?cat=Real_Estate