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4 Ways Blockchain Can Transform Insurance

Opinion expressed by entrepreneur The contributors are themselves.

According to AdvisorSmith, more than 30% of SMEs were uninsured in 2020, while 75% of business owners reported that they experienced an insurance accident that year. One of the key reasons is that navigating traditional markets can be difficult for small businesses that can face long and complex billing processes. It is whether you can secure insurance in the first place. Niche companies can struggle to find a package that fits their needs (and budget), but some of the smallest and most vulnerable companies (such as independent farmers) do not have access to any kind of coverage. There is a possibility.

Parametric insurance helps fill some of these gaps by issuing payments triggered by certain events (rather than the billing adjustment process). However, traditional parametric insurance policies deepen the very specific and potentially unfamiliar market while monitoring eligible events, confirming that they happened, and hiring individuals to approve payments. It still brings significant costs to providers who have to dig deeper. Traditionally, these costs have been passed on to policyholders, but advances in blockchain technology have made insurance from specialized providers cheaper, faster, and more accessible.

Parametric insurance logic can be easily migrated to smart contracts. A smart contract is a digital contract on the blockchain with conditional execution (if an X occurs, it executes action Y). An Oracle network like Chainlink provides the required information from outside the blockchain to ensure that payment terms are met and that the insurer needs to pay the claim. The bill is then automatically paid according to the smart contract’s predefined logic. The combination of blockchain, smart contracts and Oracle networks makes SMEs more accessible to parametric insurance. Professional providers can reduce operating costs and ensure the guarantees needed to underwrite insurance with automatic payments. The blockchain also keeps a constant record of transactions and provides accountability. Smart contracts improve efficiency by automating contracts, and the Oracle network that connects the blockchain to real data verifies that the event actually happened and that automated payments cannot be manipulated.

Providing insurance using smart contracts allows participants to bypass the billing process and receive funds more quickly. The provider knows that the bill will be paid based on a pre-determined, verifiable and objective metric. Here are four blockchain-based parametric insurance products that small businesses can use to maximize operational security and minimize risk.

Related: 5 ways hybrid smart contracts can change the blockchain industry

1. Crop insurance

According to parametric crop insurance provider Arbol, $ 1 trillion in agricultural risk is not guaranteed, much of it in developing countries where many farmers have no insurance at all. Small businesses, or businesses facing highly variable weather conditions, can also struggle to get the coverage they need, as weather patterns become unpredictable and extreme weather events become more frequent. , Climate change exacerbates the need for this type of coverage.

Parametric crop insurance helps farmers ensure financial protection, regardless of their country’s options. These products are already up and running, and in markets like Arbol, anyone with a smartphone can get crop insurance. Arbol uses Chainlink to create a parametric insurance policy for meteorological data from the US National Oceanic and Atmospheric Administration. For example, if data from the Oracle network shows that their area has rained less than 20 inches in two months, farmers can receive payments.

Access to this coverage prevents farmers from having to uproot their families and abandon their farmland in adverse weather conditions. Also, because all activities are done on the chain and payments are determined by validated external terms, the provider is guaranteed to be responsible, transparent and fraudulent in the process. You can rest assured that your assistance will be paid quickly.

2. Flight and travel delay coverage

Everyone who travels knows the slow horror associated with the perception that planes do not depart on time. The airline will cover the flyer for cancellations, but delays can cause you to miss important events and connecting flights, so you rarely rely on anything other than booking a new, expensive last-minute ticket. However, insurers (new technologies in the insurance industry) are emerging to meet these needs, and providers leveraging blockchain technologies such as Etherisc can help move the space further.

With parametric flight insurance, business owners can be confident that their $ 1,000 investment in airfare to attend important meetings will not inflate into last-minute scrambling of new tickets. Parametric insurance automatically pays policyholders when a cancellation decision is made or when it becomes clear that a flight does not depart on time, allowing company representatives to quickly reuse funds. And make it possible to buy new tickets. Parametric insurance gives passengers more time and flexibility to plan alternative travel, as airlines often hesitate to warn about known future delays when linked to correct arrival flight data. Provide.

Related: An entrepreneurial guide to keep travel costs down

3. Logistics and supply chain insurance

In many cases, businesses are not insured for very unlikely events, but they can still be catastrophic. For example, before the Covid-19 pandemic, few valuable companies bought (or had the option to buy) pandemic insurance, and demand was skyrocketing. Parametric insurance can cover highly volatile and rare events, from pandemics to extreme weather events. In addition, by using the Oracle network to connect Internet of Things (IoT) sensor data to the blockchain, supply chain companies can purchase coverage and potential quality, especially due to loss due to shipping quality issues of fresh food. You can reduce management problems.

One of the benefits of parametric insurance is the ability to adjust contracts. For example, supply chain companies that are vulnerable to winter storms may adopt policies to protect them from disruption. For example, it may not be clear when and how much a storm will lead to delays, but parametric insurance policies can obtain NOAA data on regional ice accumulation and pay policyholders accordingly. increase. Supplier is protected regardless of whether the storm delays shipments by hours or days.

You can also improve shipping quality data by connecting IoT device data to the blockchain via Oracle. The refrigeration unit sensor can notify the parametric insurance policy to pay if temperature fluctuations compromise the safety of the product. Oracle connected to the sensor (such as PingNET, which plans to leverage Chainlink to automate supply chain payments) triggers payments. These contracts make payments much faster (usually the billing process for rotten goods requires quality testing) and record safety issues, so they are in a state when the shipment arrives. There is also the additional benefit of knowing that is good. Chain before delivery.

Related: Entrepreneurs need to adopt Web3.0

4. Live event coverage

Events such as concerts and sports are sensitive to bad weather (and there are also rare and catastrophic events like pandemics). Niche events in these spaces are unlikely to have coverage through traditional brokers, so parametric insurance is useful. Event organizers can use this to help absorb cancellation losses, mitigate risk, and smooth out the impact of cancellation dates. Similarly, it protects the organizer in case of cancellation of an event that requires a refund to all participants, or if a schedule change is required (additional logistical challenges arise). Parametric insurance is also useful if attendance at an event is simply curtailed (for example, if ice conditions prompt 20% of participants to skip the event because they do not want to drive. ). You can incorporate variability into your coverage contracts to ensure event organizers get the exact amount they need. Mark Cuban, an investor in the blockchain-based climate data project dClimate, recently said The Wall Street Journal Interview that Dallas Mavericks (who owns it) can benefit from this type of weather insurance.

Parametric insurance is cheaper, faster, more transparent and more flexible than traditional insurance policies. Small businesses can ensure the exact coverage they need without having to navigate the billing process, which slows access to aid. Blockchain-enabled coverage will revolutionize the insurance industry, reduce risk exposure, free up critical resources and ensure unprecedented operational stability.


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