Insurers and protocols create new business model to benefit farmers.
The insurtech Lemonade and blockchain protocols announced a climate damage insurance initiative for vulnerable farmers in emerging markets, which will use blockchain and cryptocurrencies. This will all run on the Decentralized Autonomous Organization (DAO) Lemonade Crypto Climate Coalition. The promise is that the product will be accessible to these farmers.
Lemonade is from the United States (USA) and also operates in Europe. It’s all online and it’s already on the New York Stock Exchange.
The insurance model for farmers is parametric risk transfer, something that is growing in the sector in some markets. In this case, it is pre-defined which events can lead to the payment of insurance – for example, windstorms at a certain speed, because this is the characteristic of the region of coverage – and the amount of coverage.
Traditional insurance, on the other hand, pays indemnities and is usually broader in coverage and pays if there are losses. This new type allows for more specific insurance for each case and can also be cheaper.
According to Daniel Schreiber, director of the Lemonade Foundation, responsible for creating the coalition, the project uses a DAO instead of a traditional insurance company, smart contracts instead of insurance policies, and oracles, – that is, solutions that send external data to blockchain networks or smart contracts, such as a weather data institute – rather than claims professionals.
So we look forward to leveraging the community and decentralization aspects of web3 and real-time weather data to deliver affordable, instant climate insurance to those who need it,” added Schreiber.
Farmer insurance includes Chainlink and Pula
The coalition includes Avalanche, Chainlink, DAOstack, Etherisc, Pula and Tomorrow.io. In addition, it has the global reinsurer Hannover Re. Weather insurance will have a stablecoin (stable currency) in a decentralized application on Avalanche. The protocol uses proof-of-stake, therefore, it is more ecologically friendly than the bitcoin proof of work.
Farmers will be able to buy climate insurance on blockchain via mobile, in stable or local currencies. Compensation is also by cell phone. The test will start in Africa later this year, because it is estimated that there are 300 million small farmers. “Most face real climate risks. And traditional, indemnity-based insurance is often not available or affordable for them,” said Rose Goslinga, co-founder of Pula. The startup is an insurtech in Africa.
Going forward, the coalition expects crypto investors to fund the DAO’s liquidity pool. The foundation is giving seed money for smart contracts. Thus, they could support the premiums (what the buyer pays to the insurer) recorded or reinsure the pool.
For Lemonade, DAOs can take the form of a special-purpose vehicle that receive insurance-linked assets or market capital resources.
The insurance sector is one of the most promising for blockchain, as it involves many parts, sensitive information and is poorly digitized. But regulation in different countries needs to allow for new models. In Brazil, 88i started testing blockchain, but stopped and intends to use it again.