{"id":500857,"date":"2022-10-14T17:13:00","date_gmt":"2022-10-14T14:13:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/smart-contract-enabled-insurance-holds-promise-but-can-it-be-scaled\/"},"modified":"2022-10-14T17:13:00","modified_gmt":"2022-10-14T14:13:00","slug":"smart-contract-enabled-insurance-holds-promise-but-can-it-be-scaled","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/smart-contract-enabled-insurance-holds-promise-but-can-it-be-scaled\/","title":{"rendered":"# Smart contract-enabled insurance holds promise, but can it be scaled?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3ae92ab4c4e\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3ae92ab4c4e\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/smart-contract-enabled-insurance-holds-promise-but-can-it-be-scaled\/#%E2%80%9D_Smart_contract-enabled_insurance_holds_promise_but_can_it_be_scaled_%E2%80%9C\" >&#8221; Smart contract-enabled insurance holds promise, but can it be scaled?  &#8220;<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/smart-contract-enabled-insurance-holds-promise-but-can-it-be-scaled\/#Hindrances_remain_Will_farmers_sign_up\" >Hindrances remain: Will farmers sign up?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/smart-contract-enabled-insurance-holds-promise-but-can-it-be-scaled\/#Does_parametric_insurance_even_need_DLT_technology\" >Does parametric insurance even need DLT technology?<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1><span class=\"ez-toc-section\" id=\"%E2%80%9D_Smart_contract-enabled_insurance_holds_promise_but_can_it_be_scaled_%E2%80%9C\"><\/span>&#8221; Smart contract-enabled insurance holds promise, but can it be scaled?  &#8220;<span class=\"ez-toc-section-end\"><\/span><\/h1>\n<p><img decoding=\"async\" src=\"https:\/\/images.cointelegraph.com\/images\/840_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjItMTAvMDBjNjBhNTYtMWZjNC00ZDRkLWI0YWEtOTdkZThjYzI2YTMwLmpwZw==.jpg\" \/><\/p>\n<div class=\"post-content\" data-v-4b69a2fe>A new insurance world is coming where smart contracts replace insurance documents, blockchain \u201coracles\u201d supplant claim adjusters, and decentralized autonomous organizations (DAOs) take over traditional insurance carriers. Millions of poor farmers in Africa and Asia will be eligible for coverages like crop insurance too, whereas before, they were too poor and too dispersed to justify the cost of underwriting.<\/p>\n<p>That is the vision, anyway, on display in the recent Smartcon 2022, a two-day conference that sought to provide \u201cexclusive insights into the next generation of Web3 innovation.\u201d <\/p>\n<p>Subsistence farms, where families basically live off what they grow and almost nothing is left over, <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.fao.org\/3\/i5251e\/i5251e.pdf\">account<\/a> for as much as two-thirds of the developing world\u2019s three billion rural people, according to the United Nations. They almost never qualify for insurance coverage and most probably wouldn\u2019t know what to do if it were offered. <\/p>\n<p>\u201cIn sub-Saharan Africa, for example, where I grew up in Kenya, insurance is basically unavailable. 3% have access to it, but nobody buys it, basically,\u201d Lemonade Foundation\u2019s Roy Confino explained at the two-day New York City event. <\/p>\n<p>The Lemonade Foundation, a nonprofit founded by United States insurer Lemonade, is behind the recent formation of the Lemonade Crypto Climate Coalition, a group that believes \u201cblockchain has the potential to pool that risk together\u201d and \u201cbasically solve the core problem that has inhibited the scale of insurance in the developing world for profit services and that is cost,\u201d said Confino at Smartcon 2022. Founding members also include Hanover Re, Avalanche, Chainlink, DAOstack, Etherisc, Pula and Tomorrow.io.<\/p>\n<p>Insurance is problematic in poor nations for many reasons. It can\u2019t be easily distributed because there are hardly any local insurance agents or brokers, and historically insurance is \u201csold,\u201d not \u201cbought.\u201d Also, insurance claims can\u2019t be validated without great expense because, typically, there aren\u2019t any claims adjusters on the scene to make damage assessments. This renders underwriting un-economic.<\/p>\n<p>But, it need not necessarily remain that way. Parametric insurance models can potentially cut producer costs by automating many traditional insurance processes, making it profitable to underwrite those previously deemed uninsurable. Sometimes called \u201cindex insurance,\u201d these models insure a policyholder against a specific event by paying a set amount based on an event\u2019s magnitude rather than the losses incurred.<\/p>\n<p>For example, if rain hasn\u2019t fallen in a certain predetermined region in Kenya for three weeks, a blockchain \u201coracle\u201d \u2014 it could be a local weather station \u2014 automatically sends a message to a smart contract that remotely triggers a payout to the policyholding farmer&#8217;s smartphone. It bypasses the claims adjustment process entirely. It doesn\u2019t matter whether an individual farmer\u2019s field is damaged. All policyholders in the area are paid.\u00a0<\/p>\n<p>Crop insurance is a good use case for parametric models because many of the forces that can damage crops can be objectively measured, such as rainfall, wind speeds, temperatures and others.<\/p>\n<p>Self-executing smart contracts also ensure that payouts for weather disasters and the like are almost im<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">media<\/a>te, noted Sid Jha, founder and CEO at Arbol \u2014 a parametric insurance provider \u2014 and this is especially important in the developing world where many farmers live hand to mouth. \u201cYou don\u2019t have customers waiting weeks, months who in many cases can go bankrupt waiting for an insurance check,\u201d he said, speaking at a separate Smartcon 2022 session. <\/p>\n<p><strong><em>Recent:\u00a0NFTs and crypto provide fundraising options for breast cancer awareness<\/em><\/strong><\/p>\n<p>Parametric insurance isn\u2019t entirely new; it has been around for several decades. But, blockchain-enabled parametric insurance has just emerged in the last few years. Most, if not all, its use cases are still in the pilot stage. The Coalition, for instance, isn\u2019t expecting to scale up its programs until next year. <\/p>\n<p>Many believe that legacy insurance systems could stand some substantial improvement. \u201cTraditional indemnity insurance has many disadvantages: it is slow, bureaucratic, constrained to home damages, and comes with significant uncertainty,\u201d <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/mackinstitute.wharton.upenn.edu\/2021\/using-blockchain-to-insure-against-climate-risk\/\">wrote<\/a> Wharton School associate professor Susanna Berkouwer recently. She described a parametric hurricane insurance product that employs blockchain <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a> in the Commonwealth of Dominica. NASA-generated hurricane alerts touch off automated international bank transfers to policyholders\u2019 bank accounts. Projects like these are worthy of further study in Berkouwer\u2019s view. <\/p>\n<h2><span class=\"ez-toc-section\" id=\"Hindrances_remain_Will_farmers_sign_up\"><\/span>Hindrances remain: Will farmers sign up?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Supplying the world\u2019s subsistence farmers with affordable crop insurance and possibly other protections via chain-based parametric insurance faces some daunting obstacles, however. One is educating farmers in the complexities of insurance. There is really no way at present that this can be done easily by technology or automation alone.\u00a0<\/p>\n<p>Tinka Koster and her colleagues at the Netherlands\u2019 Wageningen University, for example, recently <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.indexinsuranceforum.org\/event\/lessons-learned-and-guidance-notes-kenya-adoption-perception-and-understanding-agricultural\">completed<\/a> a review of the World Bank Group\u2019s Global Index Insurance Facility&#8217;s (GIIF) engagement in Kenya. To increase index insurance take-up rates among African subsistence farmers, GIIF and others would need to boost \u201cawareness, knowledge and understanding by the farmers about the insurance,\u201d said Koster. <\/p>\n<p>\u201cThe last-mile outreach is a key challenge for many services to smallholder farmers, including index insurance,\u201d Koster told Cointelegraph in emailed responses coordinated with team colleagues Marcel van Asseldonk, Cor Wattel and Haki Pamuk. \u201cTechnology can help bridge part of this gap, but technology alone is insufficient.\u201d <\/p>\n<p>\u201cSales and product understanding are huge costs in often remote and difficult to reach places,\u201d Leigh Johnson, assistant professor in the department of geography at the University of Oregon, told Cointelegraph. \u201cRenewal rates are notoriously bad.\u201d<\/p>\n<p>\u201cMany farmers need to see that insurance is a tool for managing risk and not for gambling on a certain outcome,\u201d said Jha, who agreed that educating farmers on the need for risk management tools like insurance is critical. As Jha told Cointelegraph:<\/p>\n<blockquote><p>\u201cWhen farmers are able to get access to some type of subsidized insurance provided by the government or an NGO, they become much more familiar and comfortable with the concept, and that education process becomes easier in terms of providing specialized coverage products that meet the unique needs of farmers.\u201d<\/p><\/blockquote>\n<p>In GIIF\u2019s Bima Pima product for Kenyan farmers, the World Bank Group program used village-based advisors (VBAs) to help distribute the insurance product \u2014 essentially taking the place of traditional insurance agents. The VBAs were paid monthly for their efforts. <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.indexinsuranceforum.org\/event\/lessons-learned-and-guidance-notes-kenya-adoption-perception-and-understanding-agricultural\">According<\/a> to the Wageningen report, these advisers were \u201ch<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>y with the SMS messages and the direct premium payment. But they find it hard to convince farmers and are uncertain about the insurance pay-out because the product is so new.\u201d<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Does_parametric_insurance_even_need_DLT_technology\"><\/span>Does parametric insurance even need DLT technology?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>If parametric insurance is going to succeed in emerging markets, does it even need blockchain technology? The World Bank Group\u2019s GIIF parametric insurance projects in Africa, for instance, did not use blockchain technology. What exactly does index insurance lose if it doesn\u2019t employ a decentralized digital ledger?\u00a0<\/p>\n<p>\u201cBlockchain is simply a tool,\u201d Jha told Cointelegraph, and one can use many tools to get the same outcome. Still, the digital ledger\u2019s immutability and auditability can build credibility for the program: <\/p>\n<blockquote><p>\u201cWhat DLT\u2019s do provide is trust in areas that <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a>ly tend to lack trust, and allow for possibly a more efficient micro payment system than what currently exists in some of these countries in terms of disbursing and collecting funds.\u201d\u00a0<\/p><\/blockquote>\n<p>Johnson, on the other hand, comes down \u201csquarely on the \u2018no smart contracts\u2019 camp, precisely because parametric contracts go wrong so often, and there is an important case for correcting these retroactively\u201d in the interests of fairness and equity.\u00a0<\/p>\n<p>In a 2021 article, Johnson <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.sciencedirect.com\/science\/article\/abs\/pii\/S0016718521001858\">noted<\/a> that environmental estimates made by parametric market devices used to commodify risk \u201care frequently wrong, sometimes grossly so.\u201d In the first season of R4\u2019s Ethiopian program, \u201cone of the most globally renowned programs insuring smallholder farmers against weather risk using parametric indices,\u201d wrote Johnson, R4 made an <em>ex gratia<\/em> \u201cvoluntary donation\u201d to teff farmers \u201cfollowing rain shortfalls that did not trigger the contract.\u201d Such transfers later became \u201cfairly routine.\u201d <\/p>\n<p>\u201cI\u2019m not sure how much information farmers would require re smart contracts\/blockchain at the time of enrollment,\u201d Johnson told Cointelegraph, \u201cbut one can imagine them being extremely skeptical of unknown monetary technologies and firms.\u201d<\/p>\n<p>If blockchain technology could raise farmers\u2019 awareness and knowledge about insurance, added Koster, \u201cthen it would also help for further upscaling the index [parametric] insurance in African context.\u201d<\/p>\n<p>Still, this all might take some time. Jha was asked how long it might be before agricultural insurance can achieve widespread usage among subsistence farmers in the developing world in places like Southeast Asia or Africa \u2014 two years? Five years? Ten years?<\/p>\n<p>\u201cProbably ten years,\u201d Jha told Cointelegraph, citing the challenges of education, cost and lack of data, i.e., \u201ceverything from a lack of weather stations, crop yield history, and lack of data on farming practices.\u201d<\/p>\n<p>Many farmers need to see that insurance is a viable tool for managing risk, and this is where self-executing smart contracts could provide a powerful example. If farmers see their neighbors being reimbursed immediately during an extreme weather event, they might consider purchasing an index policy themselves. <\/p>\n<p>Government subsidies could help. \u201cThere is a lot of work that is needed in terms of making insurance more affordable so that underserved stakeholders who need these tools can access them,\u201d said Jha, while Johnson added, \u201cI think the best progress will come from wider state adoption of safety net programs using parametric solutions \u2014 that\u2019s how you get coverage at scale.\u201d <\/p>\n<p>In terms of scaling, the World Bank\u2019s GIIF has already made some progress. \u201cThe milestone of one million farmers insured has already been reached in Zambia, with the index insurance bundled with the subsidized fertilizer programme,\u201d Koster said, while in Senegal, GIIF is currently reaching half a million farmers, with a similar number in Kenya with a government-supported program. <\/p>\n<p><strong><em>Recent:\u00a0Meta\u2019s Web3 hopes face challenge of decentralization and market headwinds<\/em><\/strong><\/p>\n<p>\u201cThis shows that it is possible to reach significant numbers of smallholder farmers,\u201d Koster told Cointelegraph, \u201cbut not without significant government support.\u201d\u00a0<\/p>\n<p>In sum, while parametric insurance models might enable insurance underwriters to pool risks, making it profitable to insure the previously uninsurable, and blockchain-enabled smart contracts can ensure that cash-strapped farmers received payouts during disasters almost immediately, much work still needs to be done in convincing financially unsophisticated and often distrustful farmers to sign up for such programs. Technology alone won\u2019t do the trick, and state entities may need to get involved.<\/p>\n<p><template data-name=\"subscription_form\" data-type=\"defi_newsletter\"><\/template><\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/smart-contract-enabled-insurance-holds-promise-but-can-it-be-scaled\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8221; Smart contract-enabled insurance holds promise, but can it be scaled? &#8220; A new insurance world is coming where smart contracts replace insurance documents, blockchain \u201coracles\u201d supplant claim adjusters, and decentralized autonomous organizations (DAOs) take over traditional insurance carriers. Millions of poor farmers in Africa and Asia will be eligible for coverages like crop insurance&#8230;<\/p>\n","protected":false},"author":1,"featured_media":500858,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjItMTAvMDBjNjBhNTYtMWZjNC00ZDRkLWI0YWEtOTdkZThjYzI2YTMwLmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[79387,74894,75434,74355,70299,4965],"class_list":["post-500857","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-agriculture","tag-blockchain","tag-smart-contracts","tag-adoption","tag-insurance","tag-technology"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/500857","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=500857"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/500857\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/500858"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=500857"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=500857"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=500857"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}