What does it mean for economies, governments and communities when “once in a lifetime” weather events start to occur every year?
We are seeing a whole new scale of natural disasters around the world. Emerging economies used to bear the brunt of induced climate disasters, but now it’s impossible to ignore the catastrophic impacts of our climate change, no matter which corner of the globe you reside in.
California wildfires add to thousands of deaths reported each year due to poor air quality, while in Germany hundreds of people have lost their lives this year in record flooding . Preparing for such extreme and dangerous weather conditions is now a priority for all of us.
One of the many questions that emerge from the increase in these extreme weather events is: Who will foot the bill? An AON report found that the total economic losses from natural disasters in the first half of 2021 are estimated to be around $ 93 billion. As the 2021 United Nations Climate Change Conference (COP26) approaches, the economic implications of climate change feature strongly among the litany of issues to be resolved.
Climate change has been cited as the greatest risk to the global economy, with fears of an estimated 10% decline in total economic value by 2050. As always, the case is more difficult for emerging economies , with countries like Malaysia, Thailand, India, the Philippines and Indonesia expected to be the hardest hit economically, with the global economy facing a loss of 18% of GDP by 2050.
It is high time to assess alternative approaches to mitigate the effects of climate change. How can billions of financially excluded people in emerging economies cope with these devastating impacts?
Blockchain for good
Cryptocurrencies and non-fungible tokens (NFTs) have come under intense scrutiny when it comes to power consumption, and there are many outstanding areas that still require attention and resolution. However, beyond these use cases, we are seeing more and more blockchain-based solutions emerging that are specifically designed to protect people unfairly affected by climate change.
Blockchain is already playing a positive role, from facilitating regenerative agriculture to encouraging conscious consumption. Another area of rapidly emerging growth is decentralized parametric insurance – recognized by the World Economic Forum as a way to provide a lifeline to traditionally underserved communities that face increasing disruption due to weather conditions. extremes.
The beauty of decentralized parametric insurance is its simplicity: it can be understood as an “if / then” equation, which is automatically executed through a smart contract. For example, if in a given area it rains 5 inches within 24 hours, the insured farmer immediately receives compensation under the agreed contract for flood damage. Very simple.
By removing costly insurance appraisal processes and combining them with significant innovations in an automated payment process, parametric insurance dramatically reduces transaction costs and claims cycles. Parametric insurance claims can be made through a basic phone with a network connection, allowing those in remote locations and – perhaps surprisingly – only having access to basic technology to take advantage of blockchain-backed insurance policies.
Protect the global food chain
Climate change will almost certainly increase food prices and erode the ability of many people to purchase selected foods in the short term. In the case of crop protection against weather risks, parametric insurance offers an additional layer of protection for farmers who typically cannot access traditional insurance products.
The fate of their agricultural performance is closely linked to the increase in carbon emissions through no fault of their own. This poses a significant threat to global food security, as well as job security for small farmers. Since small farmers with land less than 5 hectares are responsible on average for 50% of global food production, putting in place protections is a necessity for the global food supply.
In emerging economies today, up to 270 million smallholder farmers are underinsured, of which only 20% have access to agricultural insurance coverage. This number drops to a paltry 3% in sub-Saharan Africa.
With a global population estimated at nearly 10 billion by 2050, coupled with the crisis facing farmers in emerging economies, the small-scale agricultural industry is in desperate need of new ideas for enhanced protection. Blockchain-based and data-driven innovations, such as decentralized parametric insurance, can serve as a multi-pronged solution, bringing relief to those affected by extreme weather conditions and incentivizing conscious consumption while raising capital. , at scale, in climate adaptation to benefit small farmers and global food production.
Extend use cases and investors
As our planet’s climate undergoes further destabilization, technological innovations can play an increasing role in our efforts to manage destructive events and reduce the magnitude of their impact.
Countries like the UK have already commissioned reports on the need for greater protection for those at risk of flooding due to rising sea levels. There is room to rethink and reshape the way with flood risks assessed and premiums calculated: Parametric contracts can provide insurers with well-founded data to report flood depth and produce accurate and timely payments.
Decentralized insurance is not only more inclusive for those with coverage, but also opens up insurance opportunities for a whole new class of investors who could redefine the definition of venture capital. This form of insurance is much more open, allowing a larger group of investors to get involved, and not just the closed shop of high-capital investors in traditional markets.
Additionally, blockchain has the potential to act as a means for crowdfunding and insurance to intersect in the name of benevolent social and environmental impact. There is a huge appetite for investing in CSR (corporate social responsibility) and ESG (environment, social and governance) initiatives.
ESG funds captured more than $ 50 billion in new money in 2020, more than double the previous year. In addition, the number of ESG funds in the United States rose to almost 400 last year, a 30% increase from 2019.
Act now, speak later
As world leaders come together for COP26 to decide on their long-term strategies and approaches to tackle climate change nationally and internationally, millions of people around the world are currently suffering the consequences of years of inaction and delays towards real change.
Right now, blockchain solutions like decentralized parametric insurance are making tangible strides in relieving pressure on those most affected by climate change. While waiting for a political consensus on a coherent global approach, blockchain offers easy-to-implement solutions to help those who need it most.