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Blockchain technology will set off a new revolution in the insurance industry
According to AdvisorSmith research, more than 30 percent of small businesses did not have insurance in 2020, and 75 percent of owners reported an emergency that required coverage in 2020. One key reason is that the traditional insurance market is difficult for small businesses, which often face lengthy and complicated claims processes and don't even have access to insurance. Small businesses struggle to find insurance products that fit their needs and budget, while vulnerable groups such as farmers cannot even buy any insurance.

Parametric insurance can solve some of these problems by triggering payment by predefined events and eliminating the need for customers to go through a lengthy claims process. However, traditional parametric insurance contracts are expensive for insurers, who must drill into unfamiliar market segments and hire people to monitor unquantifiable events, verify that they are actually happening, and ultimately approve payments. Often, these costs are passed on to the end customer. However, blockchain technology could make insurance products cheaper, faster, and more accessible in niche markets.

The logic of parametric insurance is fully compatible with smart contracts. Smart contracts are digital protocols on a blockchain that can be executed based on predefined conditions, such as executing result Y if event X occurs. A network of prophets like Chainlink can link blocks to the external data needed to determine whether payment conditions are met and trigger insurance companies to settle claims. Insurance automatically pays benefits according to the logic predefined in the smart contract. The combination of blockchain, smart contract and prophet network will better provide parametric insurance for small businesses, reduce operating costs and provide the required protection for professional insurance companies, and issue insurance products that automatically pay claims. Transactions on the blockchain cannot be tampered with, so there is full accountability; Smart contracts can be automated, thus increasing efficiency; A network of prophets can link blocks to real-world data, verify that events actually happen and ensure that automated payment processes cannot be manipulated.

Insurance companies can guarantee compensation based on predefined, verifiable objective measures, so insurance customers can bypass the cumbersome claims process and receive benefits faster. The following sections discuss four blockchain-based parametric insurance products that can maximize operational security and reduce risk for small businesses.

01 Crop Insurance
According to Arbol, a parametric crop insurance company, $1 trillion worth of crop risks are not covered by insurance. Much of that is in developing countries, where many farmers have no way to buy insurance. Small businesses or individuals facing adverse weather also have trouble getting the insurance products they need. As climate change makes weather more unpredictable and extreme events more frequent, demand for weather insurance has increased.

Parametric crop insurance protects the economic interests of farmers in all countries. Such products are already on the market, such as Arbol's crop insurance, which people can buy with their smartphones. Arbol hooked up with Chainlink, taking weather data from the NATIONAL Oceanic and Atmospheric Administration to create parametric insurance contracts. For example, if a network of prognosticators sends data showing that less than 20 inches of rain fell in a given area in two months, a farmer could receive an insurance payment.

With such insurance products, farmers don't have to leave their fields abandoned and move their families during bad weather, because they know they will soon be compensated. Because all activities are in the chain and compensation is triggered based on verifiable external conditions, the insurance company claims process guarantees accountability, transparency and fraud protection.

Flight 02 and Delay insurance
Anyone on business knows the pain of a delayed flight. While airlines reimburse passengers for cancellations, delays can also cause passengers to miss important trips or connections. And delayed passengers have no choice but to book new flights at a higher price. Now, however, new insurtech is popping up to fill this demand gap. Insurance companies like Etherisc are also taking advantage of blockchain technology innovations to further push the insurance industry forward.

With parametric air insurance, business owners traveling for important meetings can be sure they won't have to scramble to book a new flight at the last minute at a high price and pick up the difference because of a flight delay. Once a flight is cancelled or it is clear that the flight will not take off on time, parametric insurance automatically pays the insured person. That way, business travelers can use the money to book new flights quickly. Because airlines often don't give passengers advance notice of scheduled delays, parametrics could give passengers more time and flexibility to adjust their travel arrangements if they could tap into more accurate flight data.

Logistics and supply chain insurance
For companies, very low probability events are usually not insured. However, these events can often have extremely serious consequences. For example, few companies had pandemic insurance before the outbreak, or none at all, leading to an explosion in demand. Parametric insurance is for very variable and very low probability events, such as epidemics and extreme weather. In addition, the network of prophets can be used to connect data from iot sensors to blockchain, providing insurance services for supply chain companies and avoiding quality control risks, such as economic losses due to shipping quality problems, especially perishable goods.

One advantage of parametric insurance is that you can customize the insurance contract. For example, a supply chain business whose operations are vulnerable to a winter ice storm could buy insurance to hedge against that risk. While it's impossible to know exactly how an ice storm will affect shipping times, parametric insurance can take data on the thickness of ice in an area from the National Oceanic and Atmospheric Administration and use that as a basis for insurance claims. Whether the ice storm delays shipments by hours or days, suppliers are protected.

Connecting iot data to the blockchain via a predictor could also improve the transport of quality data. If the cooling unit sensor detects that temperature fluctuations affect product safety, it can trigger the parametric insurance to pay compensation. Payments can be triggered automatically by plugging the prophet into a sensor (such as PingNET's plan to plug into Chainlink to automatically trigger supply chain payments). This kind of parametric insurance contract will greatly reduce the claim time (note: usually the claim process requires quality inspection of damaged goods). In addition, the consignee can be confident that the goods are intact when they receive them, since any security issues are recorded on the blockchain in advance.

On-site event insurance
Live events such as concerts and sporting events are often affected by weather and sudden disasters such as epidemics. Parametric insurance can play a role in this area as these activities are often unable to purchase insurance through traditional channels. Event organizers can hedge their risk by covering the cost of cancellations. Cancellations also require event organizers to refund all participants or reschedule and organize events. Parametric insurance can also compensate event organizers in this respect. Parametric insurance is also available if attendance at an event is affected, such as when ice on the road causes 20% of the audience to miss due to commuting. The insurance contract can also include variables that allow the event organizer to guarantee a specific amount. In a recent interview with the Wall Street Journal, Mark Cuban, an investor in dClimate, a blockchain weather data project, pointed out that the Dallas Mavericks could also buy such weather insurance to hedge their risk.

Parametric insurance is cheaper, faster, more transparent and flexible than traditional insurance contracts. Small businesses can tailor their own insurance products and bypass the complex and lengthy claims process. Blockchain insurance is set to revolutionize the insurance industry by reducing risk, leveraging critical resources and achieving operational stability in an unprecedented way.

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