Blockchain Adoption Depends on Government, Market Incentives

Blockchain Adoption will ultimately depend on government and market incentives

Having worked in the title insurance business, I believe that blockchain could be used to enable property owners to record and transfer legal ownership (e.g. “title”) of real property. Title insurers wrote nearly $20 billion in premiums in 2020 reflecting a 22% increase from 2019. The industry is cyclical especially in the residential market segment because title fees vary with sales volume and loan origination volume.[i]

The high cost of labor to perform title insurance tasks means that there are rapid hiring and layoff cycles that follow these cycles. Therefore, retaining skilled people across cyclicality is an opportunity that could also be solved by using blockchain because it could reduce manual steps to verify property derails using a shared ledger.

Michael Arrigo ERISA
Michael Arrigo was trained in crypto economics and blockchain, smart contracts, distributed ledgers, non-fungible tokens (NFTs), fungible tokens, privacy, and valuation methods for initial coin offering (ICO) investments at Massachusetts Institute of Technology.  He and his team perform investor diligence on crypto asset, crypto economic and token based ventures and data governance.  Mr. Arrigo and his team publish the Blockchain Healthcare Daily and area active in developing blockchain and cryptoeconomics based solutions for the healthcare industry.   Contact.

Today, title insurance involves a combination of manual and electronic steps, performed by a title insurance company to certify that the seller has title and the authority to sell, and that the title is ‘clear’ of encumbrances.  These steps include producing a title report which lists property information including the owner as well as any liens, or encumbrances.

Unfortunately, blockchain trial in Cook County Illinois looked promising for title insurance, but ultimately failed. The conclusion was that “For real estate, [blockchain] has the opportunity to remove people from the transaction who don’t add value outside the system. They provide value within a broken system. If you fix the system, they become unnecessary.” [ii]

Again, having worked in the Title business, job security among subject matter experts created a wall to adoption. Case in point, my own experience attempting to help adoption of e-Mortgages. They failed for the same reason.

Settlement and reconciliation processes today in Title are manual.  Blockchain eliminates people.  Again, this is a barrier to adoption as discussed above. Because it reduces the cost of verification, again, less people are needed creating a barrier to adoption. Although title insurance is expensive, it is relatively cheap compared to the risk avoidance that it provides and cheap compared to the cost of the asset purchase and sales commissions.

Therefore, the last mile problem may have to be solved with government stimulus funds as an incentive.  Specifically, the solution may involve Federal government incentives such as those used in healthcare (See the ARRA HITECH Act of 2009), where $30 billion was paid to incentivize physicians and hospitals to convert to electronic health records. [iii]

Customers are typically banks and trusts that hold real property assets. The value-chain replacing aspect (i.e. replacing people) is the challenge. The technology would be permissioned because only certain entities can view title details and facilitate the transfer. This would be a trusted federated network as opposed to an open consumer solution.

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[i] Housingwire.  https://www.housingwire.com/articles/title-insurers-wrote-nearly-20-billion-in-premiums-in-2020/

[ii] November, 2021. Could Blockchain Disrupt Title Insurance?  https://therealdeal.com/national/2021/11/05/could-blockchain-disrupt-title-insurance/

[iii] September 2020. What is the HITECH Act?  No World Borders, Inc.  https://noworldborders.com/2020/09/22/what-is-the-hitech-act/

Michael F. Arrigo

Michael Arrigo brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health IT, and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations who provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and medical billing, fraud damages, as well as electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, medical malpractice, insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software SA (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls IT audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and is published in Healthcare IT News.

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