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.
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.
[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/