The importance of decentralized insurance in a destabilizing climate

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What does it mean for economies, governments and communities when “once in a lifetime” weather events begin to occur on an annual basis?

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We are witnessing a whole new scale of natural disasters around the world. Earlier, emerging economies bore the brunt of induced climate disasters, but now it is impossible to ignore the devastating effects of our changing climate, no matter where in the world you live.

Wildfires in California are adding to thousands of deaths annually due to poor air quality, while record floods this year in Germany have resulted in hundreds of lives. Preparation for such severe and dangerous weather conditions is now a priority for all of us.


One of the many questions emerging from the increase in such extreme weather events is this: Who will pay the bill? a AON. report of It found that the total economic loss from natural disasters is estimated to be around $93 billion in the first half of 2021. as we approach 2021 United Nations Climate Change Conference (COP26), the economic implications of climate change are looming large among the issues to be resolved.

Climate change has been cited as the biggest risk to the global economy, with one forecast fearing 10% decline in total economic value by 2050. As always, the case is more challenging for emerging economies, with countries including Malaysia, Thailand, India, the Philippines and Indonesia making the most. negatively affected financially, with the global economy facing a loss of up to 18% in GDP by 2050.

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The time has come to assess alternative approaches to mitigating the effects of climate change. How are the billions of people financially excluded in emerging economies to cope with these devastating effects?

blockchain for good

When it comes to energy consumption, cryptocurrencies and non-fungible tokens (NFTs) have received their fair share of scrutiny, and several outstanding areas still require attention and resolution. However, beyond these use cases, we are seeing more blockchain-based solutions emerging that are specifically designed to protect those unfairly affected by climate change.

From facilitating regenerative agriculture to encouraging conscious consumption, blockchain is already playing a positive role. Another rapidly emerging area of ​​development is decentralized parametric insurance – recognized by World Economic Forum As a means of providing a lifeline for traditionally disadvantaged communities that face ever-increasing disruption due to extreme weather.

The beauty of decentralized parametric insurance is its simplicity: it can be thought of as an “if/then” equation, executed automatically via a smart contract. For example, if a given area receives 5 inches of rain within 24 hours, the insured farmer receives immediate payment for flood-related damages as per the agreed contract. Very simple.

By removing costly insurance appraisal processes and combining it with significant innovations in automated payment processing, parametric insurance greatly reduces transaction costs and claim cycles. Parametric insurance claims can be made via a basic phone with a network connection, able to take advantage of blockchain-backed insurance policies in remote locations and – perhaps unsurprisingly – themselves with only access to basic technology. makes.

protecting the global food chain

Climate change will almost certainly increase food prices and destroy many people’s ability to afford select foods in the near future. In terms of crop protection against weather risks, parametric insurance provides an additional layer of protection for farmers who are usually unable to access conventional insurance products.

The fate of their crop yields through no fault of their own is tied to increased carbon emissions. This poses a significant threat to global food security as well as job security for smallholder farmers. Small holding farmers with less than 5 hectares of land are responsible for 50% on average For global food production, safeguarding the global food supply is a necessity.

In emerging economies today, approximately 270 million smallholder farmers are underinsured, with only 20% Access to agricultural insurance coverage. In sub-Saharan Africa this number drops to 3%.

With the global population projected to reach nearly 10 billion by 2050, with the crisis facing farmers in emerging economies, the small agriculture industry is in dire need of innovative ideas for increased security. Blockchain-enabled, data-driven innovations, such as decentralized parametric insurance, can serve as a multi-faceted solution, providing relief for people suffering from severe weather conditions and encouraging conscious consumption, while At the same time capital can, at scale, be driving climate adaptation. Benefiting smallholder farmers and global food production.

Expanding use cases and investors

As our planet’s climate becomes more volatile, technological innovations can play an increasing role in our efforts to manage catastrophic events and reduce the scale of their impact.

countries like the UK have already done commission report On the need for greater protection for people at risk of flooding due to rising sea levels. There is an opportunity to rethink and reshape how flood risks are assessed and premiums are calculated: parametric contracts allow insurers to report flood depths and make accurate and timely payments. Can equip with installed data from.

Decentralized insurance is not only more inclusive to those who benefit from coverage, but it also opens up insurance opportunities for an entirely new class of investors who may redefine the definition of risk capital. This form of insurance is far more open, allowing a wider group of investors to participate, not just the closed shop of high-capital investors in traditional markets.

Furthermore, blockchain has the potential to act as a medium for crowdfunding and insurance in the name of philanthropic social and environmental impact. There is a huge appetite for investment in CSR (Corporate Social Responsibility) and ESG (Environmental, Social and Governance) initiatives.

ESG Fund Captured new wealth worth more than $50 billion during 2020 – More than double as compared to the previous year. Additionally, the number of ESG funds in the US jumped to nearly 400 last year – a 30% increase from 2019.

act now, talk later

World leaders gather for COP26 to decide their long-term strategies and approaches to tackle climate change at the national and international level, with millions of people around the world currently suffering the consequences of years of inaction and delays in real change Huh.

Right now, blockchain solutions like decentralized parametric insurance are making solid progress in easing pressure on those most affected by climate change. While we await political consensus on a cohesive global vision, blockchain provides easy-to-implement solutions to help those who need it most.

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