Could blockchain disrupt title insurance? – The Real Deal
By now the world has become accustomed to the idea of blockchain, the underlying cryptography technology behind Bitcoin. Most don’t really understand the finer points of hashing, mining, and distributed computing that make it all work but some of us at least get the basics: a blockchain is an immutable ledger that can be used to securely record ownership. The way it works is that every change made to a database is recorded in blocks that are stuck together chronologically onto a long chain, hence the name. Most of the uses of blockchain, like Bitcoin, are decentralized in nature, meaning that the chain is being stored and computed by a network of computers. This means that there are many backups to the database, so any change on one has to match with the others or it is rejected. The theory is that any one database can get hacked, but it is nearly impossible to hack 51 percent of a giant network of computers at the same time, which is what would need to happen for Bitcoin to be cracked.
Back when Bitcoin was still a relatively unknown currency, the ways that blockchain technology could be used were still being explored. One obvious way for it to be used is to help make it easier for property owners to record and transfer legal ownership of their real estate, something that is known as title. Every property transaction has to go through a process to ensure that the person selling it is the legal owner and that no one else will be able to claim ownership of the property later on. First, there is the title report, which includes all of the property info including a list of who owned it and who has the rights to use it in any way. Then, just in case that report didn’t catch all of the possible ownership claims, liens, or easements, there is title insurance. The title report only runs a hundred dollars or so but title insurance can be in the thousands.
The title insurance industry is estimated to be close to $20 billion in the U.S. alone. The entire industry relies on the inefficiency of the title process, so it seems like a perfect problem for the mighty blockchain technology to solve. And try to solve it blockchain enthusiasts did. A number of programs were piloted by different municipalities to see how blockchain could help them make their title process faster and less error-prone. In the U.S., Chicago’s Cook County was one of the first to experiment with a blockchain-based title registry. The results of the study were appealing, Cook County officials were quick to sing its praises. But nothing ever materialized. The county never adopted blockchain as a way to record title and the person who the county partnered with for the technology, Ragnar Lifthrasir, has since moved on from pursuing blockchain for real estate transactions.
John Mirkovic, deputy recorder for information technology and communications at Cook County had maybe the most profound statement that is at the same time a plea to change the title system and a reason that it might never be changed: “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.” No matter how inefficient the title process is, the road to reforming it runs through the county recorder’s offices across the country. Making the switch to blockchain would essentially make those departments no longer necessary. Talk about a hard sell.
There have been a few places that have made the switch to blockchain property title registry. The most talked about is the Republic of Georgia. Under its former President, Mikheil Saakashvili, the country underwent a number of reforms to help curb corruption that is common in many former Soviet nations. They were also looking to streamline a particularly inefficient system that was overseen by two competing federal agencies. When it comes to efficiency, the switch worked. The process for securing the title for a property in the Republic of Georgia is one of the fastest in the world. (This is important because one of the main advertised benefits of owning land in the country is that, for purchases over $100,000, it comes with citizenship papers).
But when it comes to curbing corruption, it turns out that a lot more than an immutable digital land registry is needed for that. President Saakashvili was kicked out of the country after losing a contested election to a pro-Russian opponent. Three weeks ago, he re-entered the country only to be immediately jailed. From his jail cell, he wrote these words to the largely unaware general public: “But now I’m here in my solitary confinement cell on a hunger strike in a country that only formally has a judiciary, government, and president but as everyone knows is fully controlled by an oligarch that appoints and fires government at his will, orders arrests and detention – a typical picture of state capture.”
Not exactly a country I would trust to protect my property ownership rights, no matter how well the records are kept.
Blockchain has the ability to disrupt the title process, but that doesn’t mean that it will. Many inefficiencies are less technical and more political in nature. It is hard to get an industry to adopt something that would shrink its market size. Even the extra costs for title reports and insurance don’t create a huge problem for buyers and sellers of real estate as they represent a rounding error for the fees associated with a property transaction. The title process is flawed and needs to be streamlined, no one would argue differently. But until we can get the entire country to agree that blockchain is a better way to do it, don’t expect disruption any time soon.
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