With blockchain technology on the rise, disrupting various industries for better and for worse, the title insurance industry is no exception. Bitcoin and other cryptocurrencies have popularized the digital ledger technology. It has the potential to make the billion-dollar title industry obsolete. However, experts believe that the blockchain will provide users with more opportunities rather than challenges.
Sweeden may be the first country to utilize a national blockchain title registry according to the Wall Street Journal. Lantmäteriet is Sweden’s 400-year-old land mapping and registration authority. The government agency is actively looking for volunteers to participate in blockchain land title transfers.
These transfers are digital yet recording a transaction can take three to six months following the signing of a purchase contract. Blockchain technology can reduce the time to mere hours.
Public record agencies will face challenges once the system adopts the blockchain. For example, the transferring of large amounts of information.
There are about 3,600 counties, towns, and other jurisdictions with local land title transactions. This does not include older records that have yet to be digitized.
Despite the challenges, several states are planning to embrace blockchain technology. For example, Vermont has already passed legislation regarding blockchain. Legalizing the use of this technology to store land titles for when it is ready for implementation.
Title insurance companies are watching how blockchain technology develops over the next few years. Steven Gottheim, senior counsel of the American Land Title Association, has stated that companies must strive to be in the driver’s seat versus in the passenger’s seat.
“The lesson you can see in the industries that have been disrupted [is that the greatest danger is to companies that] don’t realize new technology is coming,” said Gottheim.
IBM and R3 CEV, a tech startup company, are already testing their title recording blockchain technology. This testing has shown an increase in efficiency and accuracy.
Gottheim believes all records will be available online at a low-cost through blockchain. This will make searching for records and analyzing them much easier for users.
Through this new approach, users may find that the insurance fees will decrease significantly. Blockchain eliminates costs for another service or “middleman.”
Security and Combating Fraud
Blockchain may be the safest and most secure platform for digital information. The Wall Street Journal reported that it is “practically bulletproof when it comes to fraudulent transactions.”
The blockchain is a transparent platform. Users can see every completed transaction. They are verifiable as evidence.
Transactions are indisputable. The blockchain ledger will not receive a false property record. For example, smart contracts ensure that all parties receive what they agreed to. The blockchain completes this automatically reducing the chance for human error.
Some experts have speculated that blockchain’s security may make title companies obsolete. However, title companies do more than check documents for fraudulent activity.
There are defects that are not always considered fraud. For example, Goldman Sachs reported that about 70% of title searches find no defects, while 30% find defects.
Property owners may marry, have children, divorce, or pass away which can result in errors. In this case, title insurance companies will be needed to review and clear such defects manually. This is one aspect where blockchain falls short.
The Future of Title Companies
The fact that blockchain will disrupt existing industries is no exaggeration. However, this disruption will only affect a portion of an industry while the unaffected parts will prevail.
Title insurers must still address claims from homeowners and lenders. Blockchain may have little to no effect on this crucial aspect that title companies are responsible for.
The title insurance industry will eventually implement blockchain title registries in the near future. This will streamline the process of title search requests, certifications of title, and the issuance of policies.