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 A.M. Best: Blockchain Not a Replacement for Title Insurance

April 18, 2019

Blockchain will support not replace the title insurance industry, A.M. Best concluded in a new report.

According to the report, technology can improve the process of digitizing digital records and transactions, however, it does not remove the need for title insurance, A.M. Best concluded.

“Title insurers play a valuable role in protecting property rights and enabling transactions, including those between lenders and homeowners,” the report said. “The insured will still need an insurer behind the blockchain who can compensate them and provide support as needed when it comes time to defend their property rights. Blockchain can prospectively play an important role, but we do not foresee it replacing title insurers.”

According to A.M. Best, key advantages of blockchain for title insurers include:

  • Traceability: Every real estate transaction is a block and, therefore, all transactions can be traced historically from the latest title.
  • Efficiency: Since the ledger is available at every node, searches are faster and can make a title insurer’s due diligence process to obtain documents related to a title more efficient.
  • Enhanced Security: Given that title records would be on different nodes and updated only through consensus, getting improper access may prove to be more difficult.

Blockchains may be more secure because of the use of multiple nodes for validation, but it is not entirely secure, A.M. Best said. One way to hack a blockchain is through taking control of the majority of the nodes. Intentional crimes (fraud) and unintentional errors will continue despite the introduction of new technology.

“In order to realize the value of the blockchain, current title systems and land records will need to be converted into distributed ledger systems,” the report said. “The theme, ‘garbage in, garbage out’ is still valid and any fraudulent or erroneous records would be transferred as much. The due diligence process would be as necessary as before.”

Click on the link below to read the complete article online at alta.org