Calamity insurance, bringing coverage where it is needed most.
It has been a fantastic experience at the Dublin Blockchain Hackathon! A big thank you to Deloitte, Bank of Ireland, Fidelity Investments and Chainsmiths for making this possible! And thanks to all the participants! There were 12 teams hacking away at very cool ideas and I believe that everyone involved learned a lot and managed to turn out some very inspiring applications of blockchain technology. The demo’s were very impressive so great job everyone!
We worked with a strong team with a clear vision of how distributed ledger technology can make a real impact. Our application was a versatile combination of blockchain and adjacent technologies and our use case was designed to bring weather insurance to farmers where today, crop insurance penetration rates are typically below 1%. A 1% penetration rate means that 99% of the agricultural sector is vulnerable to having their livelihoods swept away in a storm.
Below is a video demonstrating the output of our efforts, for which we amused ourselves with the name calling it “wETHer Insurance” as it was built on the public ethereum blockchain. A commercial version of the application would clearly be either white-labelled in the branding of the institution using the application or re-branded to something more understandable for the local market but that is something the marketing folks to decide, not the techies at the hackathon :)
In this part of the world, upwards of 60% of GDP comes from agriculture and subsistence farming is the norm. Imagine the impact on the lives of the millions who do not have basic crop insurance coverage when inclement weather strikes. Nothing short of devastation.
Adoption of financial services
In financial services, there is a rather predictable pattern for the adoption of various financial products.
First comes basic financial services such as bank accounts to store savings, money transfers and payments, credits and micro-loans for businesses.
Second, when the facility exists to store money and transact with others is in place, the next step is to plan for the future and buy insurance for property and for the means of making a living. When the insurances for day-to-day purposes are in place (non-life insurance), focus moves to taking care of those who will be around after one departs from this world via life.
Typically what follows is investment products.
Where is the developing world today in this adoption curve?
First of all, to say “the developing world” is by nature to generalise but for the sake of keeping this publication brief, I will stick to broad terms.
53% of the world’s population lives without basic financial services. That is about 2,4 billion adults (McKinsey&Company)
There has however been quite some development in this space over the past few years made possible largely by rapid adoption of mobile technology and companies such as MPesa finding innovative ways to make basic financial services accessible.
On the insurance side, not so much unfortunately. As mentioned above, crop insurance penetration rates are typically below 1% and a 1% penetration rate means that 99% of the agricultural sector is vulnerable to having their livelihoods swept away in a storm.
So is this a product for the developing world?
Not exclusively of course. There are number of cases for developed economies where this product is relevant.
Crop Insurance Top Up
First, generally in the developed world, most farmers have coverage for their crops however there are times when additional coverage is sought. In such cases rather than seeking a primary policy for their crops, farmers may look to to “top up” the insurance policy they took out at the beginning of the growing season. A practical scenario when this occurs is when the market price of the crop the farmer is growing has increased during the growing season and as the season progresses, the farmer recognises that the nominal payout he can expect in the event that a crop damaging storm hit would be lower than the market value of his crop. In such a case, the farmer may want to “top up” his insurance to cover the additional lost revenue that he expects based on the evolving market price of the crop that he is growing. Below is a design concept for this scenario.
Digital Cooperative Insurance
There are also cooperative forms of insurance whereby a community of farmers pool their funds in order to provide coverage to a member of the community in the event of a calamity such as floods or hail affecting the members crops. The cooperative sets the rules of the community for both premiums and payouts up front and when a calamity occurs, claims are handled by the members of the cooperative.
Using the wETHer Insurance application for cooperative insurance provides a digital means to manage the collection of the funds of the members, the determination of the rules to be applied for payouts and the claims handling process. The cooperative would also select the weather service of their choice to ensure that an independent local source (oracle) is used to verify the severity of damage and therefore the appropriate payout per claim. The wETHer insurance application thus provides an efficient means to organise the crop insurance needs of the cooperative and installs an independent 3rd party source to determine when to payout.
Once again, thanks to the organisers of the hackathon, the participants in all teams and to the team we worked with!