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[Column]Importance of decentralized insurance in an increasingly unstable climate environment | Today Nation News

TechnologyImportance of decentralized insurance in an increasingly unstable climate...

What does the “once-in-a-lifetime” meteorological phenomenon mean for the economy, government, and communities?

Natural disasters of a whole new scale are being seen all over the world. In the past, emerging economies have been hit by provocative climate disasters, but now, no matter where on earth they live, the devastating effects of climate change cannot be ignored.

Wildfires in California have spurred deaths from air pollution, which is reported to be in the thousands each year. Meanwhile, in 2021, hundreds of people were killed in a record flood in Germany. Preparing for such extreme and dangerous weather conditions is now a priority for all of us.

One of the many questions raised by this increase in extreme weather is who will pay for it. According to AON’s report, the total economic loss from natural disasters in the first half of 2021 is estimated to be about $ 93 billion. The 26th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26) was held in 2021, and the economic implications of climate change weigh heavily on many issues to be resolved.

Climate change is the number one risk factor for the global economy and is projected to reduce overall economic value by 10% by 2050. As always, emerging economies, including countries such as Malaysia, Thailand, India, the Philippines and Indonesia, are said to be most economically negatively affected, with the global economy losing 18% of GDP by 2050. It is said that it will be.

It is time to evaluate alternative approaches to mitigate the effects of climate change. How are billions of marginalized people living in emerging economies dealing with these devastating consequences?

Good use of blockchain

Cryptocurrency assets and non-fungible tokens (NFTs) have undergone considerable scrutiny regarding energy consumption, but many unresolved areas still require attention and resolution. But looking beyond these use cases, we can see that blockchain-based solutions specifically designed to protect those who are unfairly affected by climate change are emerging.

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Blockchain has already played a constructive role, from promoting environmentally regenerative agriculture (regenerative agriculture) to promoting conscious consumption. Another area of ​​rapid growth is decentralized parametric insurance. This insurance has also received attention at the World Economic Forum and is recognized as a means of providing lifelines to traditionally poorly serviced communities where extreme weather turmoil is exacerbated.

The great thing about decentralized parametric insurance is its simplicity. It can be understood as an “if / then” equation that is automatically executed through smart contracts. For example, if it rains 5 inches (127 mm) in an area within 24 hours, the insured farmer will be paid immediately according to the agreed flood-related damages contract. It’s really simple.

By eliminating the expensive insurance valuation process and combining it with significant innovations in the automated payment process, parametric insurance has significantly reduced transaction costs and billing cycles. Parametric insurance claims can be made via a basic networked smartphone, so even those who are remote or, perhaps surprisingly, have access to only basic technology, take out blockchain insurance. can do.

Protecting the global food chain

It is almost certain that climate change will raise food prices in the near future and undermine the ability of many to buy certain foods. In the case of crop protection against weather risks, parametric insurance provides an additional layer of protection for farmers who normally do not have access to traditional insurance products.

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The fate of crop yields is intertwined with increased carbon dioxide emissions, not the farmers’ own faults. This poses a significant threat to global food security and employment security for smallholders. Given that smallholders with less than 5 hectares (50,000 m2) of land account for an average of 50% of the world‘s food production, it is imperative to take protective measures from a global food supply perspective. be.

In today‘s emerging economies, as many as 270 million smallholders do not have sufficient insurance and only 20% have access to agricultural insurance. This figure is less than 3% in sub-Saharan Africa.

The world‘s population is projected to reach nearly 10 billion by 2050, coupled with the crisis facing farmers in emerging economies, and the small-scale farming industry is in desperate need of new ideas for increased protection. There is. Data-driven innovations using blockchain, such as decentralized parametric insurance, serve as a multi-faceted solution. It rescues people suffering from harsh weather conditions, encourages conscious consumption, guides large-scale capital to climate change adaptation measures, and benefits small-scale farmers and global food production.

Use cases and investor expansion

As the global climate becomes more destabilized, technological innovations are playing an increasingly important role in managing catastrophic events and reducing the scale of their impact.

Several countries, including the United Kingdom, have already commissioned reports on the need to strengthen the protection of people at risk of flooding due to rising sea levels. Opportunities have emerged to rethink and restructure flood risk assessments and premium calculation methods. Insurers will be provided with well-founded data for flood depth reporting and accurate and timely payments through parametric contracts.

Decentralized insurance is not only more comprehensive for those who benefit from insurance coverage, but also brings insurance opportunities to a whole new type of investor who can redefine the definition of risk capital. This form of insurance is much more open, allowing the involvement of a wider group of investors, rather than staying in the closed position of high-capital investors in traditional markets.

In addition, blockchain has the potential to act as a medium for crowdfunding and insurance, crossing in the name of well-meaning social and environmental impacts. The willingness to invest in CSR (Corporate Social Responsibility) and ESG (Environment, Society, Governance) is increasing.

ESG funds have acquired over $ 50 billion in new funding in 2020. This is more than double the previous year. In addition, the number of US ESG funds has increased to nearly 400 in 2020, an increase of 30% from 2019.

Act now and talk later

Millions of people around the world have been inactive for many years as world leaders gather at COP26 to determine long-term strategies and approaches to tackle climate change at the national and international levels. We are currently suffering from the consequences of a realistic delay in change.

Today, blockchain solutions such as decentralized parametric insurance are making tangible advances in reducing pressure on those most affected by climate change. While political consensus on a cohesive global approach awaits, blockchain offers easy-to-implement solutions to help those in need.

Editor’s Note: Author of this articleMichael Berend(Misiel Berende) is Etherisc’s Chief Inclusive Officer. Through inclusive insurance, we want to provide those in need of financial services with access to better financial services.

Image Credits: Peter Dazeley / Getty Images

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(Sentence: Michiel Berende, Translation: Dragonfly)

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