Using Blockchain to Insure Against Climate Risk

Susanna Berkouwer, Business Economics and Public Policy, The Wharton School

Abstract: Climate change will increase extreme weather events such as floods, droughts, and storms. In addition to tragic direct consequences that include deaths and physical damage to homes and businesses, climate change threatens to suppress business investments and slow economic growth by increasing the risk associated with capital investment. Traditional indemnity insurance has many disadvantages: it is slow, bureaucratic, constrained to home damages, and comes with significant uncertainty. A team led by the Climate Resilience Execution Agency for Dominica was recently selected as one of seven finalists in the Blockchain Innovation Initiative. Their novel parametric hurricane insurance product employs blockchain technology to transfer insurance payouts to individuals’ bank accounts. The technology allows hurricane alerts generated by NASA to trigger automated international bank transfers to recipients’ accounts immediately after a hurricane strikes. This rapid, flexible response is crucial for helping communities’ immediate post-disaster recovery. The application of blockchain technology to protect against humanitarian disasters is novel and has not yet been evaluated rigorously in a real life setting. We request funding to study this innovation’s deployment and its impacts on recovery and economic growth in an area with high climate risk.