Over the years, Puerto Ricans have reportedly become frustrated with delayed and inefficient payouts from insurance companies. A new decentralized insurance application built on the Ethereum blockchain may soon change all of that though.
A more transparent insurance system is perhaps the best news for the region since Hurricane Maria, the strongest storm to hit the coastal country in over a century that continues to affect inhabitants even seven months later.
Losses due to Hurricane Maria
Catastrophe modeling firm AIR Worldwide has estimated the losses due to Hurricane Maria to be anywhere between $25 and $43 billion. Lower and medium earning households were largely dependent on insurance payouts to rebuild their homes.
Soon after the storm hit Puerto Rico on September 16, 2018, Iraelia Pernas, executive director of the Puerto Rico Insurance Companies Association said, “Without a doubt, the insurance industry will play an important role in the reconstruction of Puerto Rico and its economic development, and has been working tirelessly after the hurricane hit us. The situation the insurance industry faced like the rest of the country in the first three weeks was the problem of lack of fuel, electricity and communications, which still persists in many areas.”
Traditional Insurance Models are not Perfect
The Wall Street Journal reported that only about 50 percent of American houses were covered by insurance and protected against natural calamities. Moreover, economically weak sections of Puerto Rico could not afford insurance. These households were the hit worst, making their recovery worse as compared to the rest of island. On the other hand, AIR Worldwide estimated that 90 percent of commercial buildings were covered for damages.
Puerto Ricans struggled to claim damages as insurance companies began scrutinizing thousands of applications, greatly increasing the time taken to disburse claims. The traditional insurance model was, therefore, taking far longer than usual to handle even genuine claims. As a result, unemployed residents without basic utilities found themselves incapable of leading normal lives.
Insurance on the Ethereum Blockchain
Seeing this as an opportunity, two local developers, Joel Martinez and Jonathan Gonzalez, decided to develop an insurance dapp on the Ethereum blockchain using Etherisc. The duo first reached out to Etherisc co-founder Renat Khasanshyn a while ago. After discussions, it was decided that the developers would develop an insurance product aimed at low-income households and small businesses in the country.
Joel Martinez and Jonathan Gonzalez, both full stack developers, are keepers on the Etherisc network and stand to earn revenue from the insurance products they keep running. The decentralized insurance platform they create will be able to issue, monitor and claim processes thus simplifying a complex insurance claim process.
Joel said, “Houses and apartments boarded up for months, waiting for insurance payouts. Most retail level jobs on hold — immediate loss of income for family members. No electricity for months.” Seeing this he decided it was time, “ To take a meaningful blockchain product to market and help my people, in a very tangible way at the same time.”
Blockchain Insurance using Etherisc
The team decided to create a parametric insurance policy as it makes use of public weather data. The most remarkable advantage of having a decentralized insurance model is that the application will itself begin immediate payouts within 24 to 72 hours after a category three hurricane strikes or the wind flows above 111 m.p.h. for a sustained period.
A fixed payout between $3,000 to $9,000 will be made, with the exact amount dependant on the storm’s intensity. This amount will at least help be able to provide locals with enough resources to maintain their livelihoods. The cost of insurance using Etherisc is estimated at a minimum of $10 a month.
The work on a protocol for Hurricane Insurance is already underway and is tentatively expected to be ready by July 2018.