how can smartcontracts be used chainlinkSmart Contracts and Parametric Insurance: Sid Jha and Sergey Nazarov at LABlockchainSummit

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how can smartcontracts be used chainlink Hacker Publishes Private Key, But... Smart Contracts and Parametric Insurance: Sid Jha and Sergey Nazarov at LABlockchainSummit
great hi everybody um great to be here sid great to see you again excited that were were chatting here about you know marvel and parametric insurance and all those things so sid i mean if if you could just clarify for us i think what what you do is quite amazing and what arbol works on for me is is is quite innovative and kind of the next generation and how people you know manage risk as as individuals farmers entities and so on so i think it might be useful for people to more clearly understand what is parametric concerns like why why is parametric insurance useful what is it maybe just if you could explain to us exactly what it is that our bold and parametric insurance does sure and uh thanks uh for having me here and its great to see you also sergey so yeah parametric insurance uh you know at a very simple level parametric insurance is uh being paid based on data so if you think about what traditional insurance is like uh you know you have a flood in your house you have a fire whatever there is going to be an adjuster a human being who shows up to your property to assess the damage and this is true of autos this is true of home this is true of business insurance and a whole host of other ones and so thats the way traditional insurance works where the loss assessment is subjective you have a person who is going to basically use their experience to figure out how much damage you have now this system has been in place for a long time but the problem obviously is that its subjective and theres a lot of room for deciding how much damage you actually suffered the issue tends to be is you obviously have a very different level of ability to dispute that against a very large insurance company parametric takes all of that out and says heres a data set that data set can be rainfall data it can be a satellite image it can be an iot sensor something objective that can allow you to uh hit a trigger and get you paid so it could be something as simple as hey the total rainfall you know around my farm in the month of july was below eight inches um i want to get paid a hundred thousand dollars if that happens because that will harm my crops and so in a nutshell thats what parametric insurance is um you know its uh its its one of those things whose time has come now this was very difficult to do back in the day obviously the data sets werent there you know you you obviously want to make sure that the person whos getting paid uh the data has some link to their loss experienced right so and take the case of weather data if the weather data is for you know 100 kilometer wide grid or your entire state thats not going to really matter for you so for parametric insurance to work you need the data to get more and more specific which is where we are getting now with millions of sensors around lots of satellites weather data is getting better so um yeah thats where parametric insurance i think thats the why its the moment to shine for this type of insurance it takes a lot of the inefficiencies the delays disputes and often also fraud that can exist in traditional insurance and takes that out of the window and says lets make everything objective and lets make everything be being paid based on data yeah im a big believer in it as as soon as as soon as i understood what what parametric insurance is about many years ago i i immediately just said you know that thats the way of the future and theres going to be more and more data that comes around and as more and more categories of data become more and more available more reliable and and more kind of usable for all these insurable events that that is that is the way everybody wants everything to work because its just going to have such solid proof and its good its its its just a logical way that that you would make things work because if you have that level of proof you would use it in these uh insurance contacts to the benefit of the insurance company the benefit of the user the benefit of really the benefit of everybody at the end of the day so its its its very its very exciting for me to see it happening yeah its uh you know its clear and uh you dont have to worry whether im gonna get paid or how much im gonna get paid if a certain event happens um so a question for you sergey would be uh you know how do you think insurance will benefit from blockchain yeah i think that the appearance of that data is very important so it is important that the data appears and that it exists at all but if youre going to be triggering high value insurance contracts or even a multitude of of medium or lower value insurance contracts you you at the end of the day are automating the control and movement of a lot of value and and thats really what blockchains and smart contracts and oracles excel at right so i i think i think its actually a very natural fit for for two for two very very specific reasons the the the first reason is that you you you want proof and you want reliable automation and reliable automation is what smart contracts and oracles and all these things are really about you you already have some mesh methods of automation out there right in a centralized server or somewhere else and i think what people dont fully know until they unpack some of the problems being solved is to what degree the lack of reliability or the ability to tamper with that data or the ability to manipulate it or change it or or kind of game it to the benefit of one of the parties actually affects the value of of an insurance product right and thats something that i think people that are in the insurance industry and leaders like you innovators that are really you know kind of driving that forward know very well but and its and its also very logical and clear but its not immediately clear to everybody else right is that you you wouldnt want to trigger huge amounts of insurance value with unreliable data even if the data was out there you would need that data to then be made reliable and and then the second thing that i think is is is quite important is that you have all these trust issues between policyholders insurance companies you know all these kind of parties even market participants that might you know get securitized insurance in some form at some point and theres all these trust issues of how do i know right how do i know ill get paid out how do i know youre gonna actually pay me what are my guarantees and i think with creating a data-driven parametric insurance product in the smart contract format does is it allows you to turn turn to your user and say here are my guarantees i have cryptographic guarantees i have these data-driven guarantees i have all these methods of proof and in fact i cant manipulate um the outcomes here right and and and thats really what the user wants like if i wanted an insurance policy relationship with with an entity i wouldnt want that relationship based on a logo i wouldnt want like you have a nice logo and im just going to trust you and i i dont think that fundamentally speaking a rational economic actor given the choice would want that relationship if they could have the more reliable more cryptographically assured relationship of im guaranteeing an outcome using physics and math and data and all these methods of proof that even i cant manipulate and so thats thats thats really the next level of the insurance industry um in in my opinion yeah that makes sense uh you know we we face this issue all the time you know if you operate in emerging markets the level of trust is extremely low between these different participants but even in developed markets you know as these parametric insurance contracts get more complicated lets say theyre using a bunch of satellite data and iot sensor data you know who is time stamping this there are different parties who want to make sure this is um sound and a distributed ledger is an ideal use case for that because you want the the reinsurer will want to make sure that okay all this data came in when you said it did the policyholder wants to make sure that they got paid because theres thousands of data points coming in at different times and so as we get more complex as we start to personalize these insurance policies to the users experience but still keep it data and objective blockchain becomes more and more essential yeah yeah i i completely agree so now now now that were kind of going in this direction and you know i know you have a lot of insight about the insurance industry and the evolution and whats going on there so from from your point of view seeing all these kind of things come together and just you know what what are you seeing in the insurance industry how how do you see it all evolving as an industry sure so the insurance industry you know for a long time has been in a almost state of suspended animation they are well protected by regulation there is uh you know often been not a huge impetus to innovate and thats been changing rapidly over the last five to ten years uh ensure tech is you know has become a buzzword theres a lot of companies trying to make different parts of the insurance process more efficient so claims processing for example is a big area of focus you know it takes its very expensive and the way it was done was all old school paper so thats one area parametric is obviously as we discussed another big area and where we you know where we see insurance heading to is converging towards more of the sort of wall street model of things like securitization things like you know um making sure that the user has uh you know clarity over whats happening and that the insurance company cant just decide on hey im not gonna pay you because of xyz reason or find some loopholes in your contract and say that that means that youre not getting paid so theres a move towards you know more clarity for the user theres a move towards just having more objectivity in the process and a big move towards just being more user-friendly and this is something thats often missed even in the blockchain space you know you have companies like obviously lemonade and others that have been trying to make the user experience because you know lets be honest nobody enjoys you know going out and buying insurance and you know you want people to feel that this is a simple easy process to get this coverage and they know what theyre getting and not be surprised later when companies dont pay up um you know during this covet time youll see lots of there have been lots and lots of lawsuits happening and some companies have even gone bankrupt because their insurers didnt pay this is the kind of stuff that you know things like data and blockchain will really start to address that you you shouldnt be in a case where you purchase a policy and you think youre going to get some coverage and then later you find out that its not there um and i think the other big sort of movement in insurance is going to be uh to really start to address some of these big issues that we are facing as a society things like climate change and you know you have a trillion dollars of just crops in the world that get no insurance annually thats a huge gap theres lots and lots of gaps like this where you know insurance is very well trafficked in the urban sort of wealthy areas but huge parts of the world dont have insurance and its very hard for you to plan for the future if you cannot reduce some of these random risks right if a you know if the next storm can wipe out your farm or livelihood and thatll set you back years theres its going to be very hard to develop that region of the world and so i think insurance is going to need to start addressing a lot of these big gaps that exist especially with things like climate change and we have pandemics lots of different risks that are that seemed so distant and so far away and now theyre you know coming much much closer to our uh you know awareness i i absolutely agree with you absolutely i i think i think at the end of the day that theres theres going to be a huge demand for insurance that has clarity about counterparty risk and has clarity about how people are going to actually pay you out defined in extremely clear terms ideally around data right and i think that that getting polished in certain markets and then making its way into emerging markets is is going to underpin a lot of economic activity that that is is is in and of itself like worthwhile from the point of view of what blockchains and smart contracts and oracles can do for society right like the fact that there are all these people that dont have a way to manage these serious risks related to weather i mean we see storms now in the caribbean on a regular basis you know temperatures are increasing in certain parts of the planet here and there and any number of other risks right against which you do have a lot of a lot of very solid data where theyre theres kind of like a technologically enforced parallel legal system that now enables insurance to make its way to all of these people that that previously wouldnt have had it and and that to me is is extremely exciting because its its really going to have a life-changing impact for some of them and and all theyre trying to do is kind of pursue their economic destiny in a in a kind of a noble profession which is is essentially feeding people right so its its actually a worthwhile thing for all of our kind of technological technocratic work to to to to l lend a helping hand to all right um i guess uh for you i would ask you know obviously d5 has been uh very much talked about recently and uh you know its been gaining traction how do you see defy interacting with insurance i think a lot of the things you said before about securitizing insurance is a very logical logical path that i i cant fully understand why it hasnt been pursued in the traditional markets but taking insurance cash flows and turning them into collateral turning them into individual economic units in the form of tokens or in the form of these kind of units that can then get traded or turned into tokens or moved around within the d5 ecosystem which is which is actually very hungry for new collateral especially collateral that can diversify risk away from cryptocurrency volatility right and insurance cash flows are are are pretty stable and if if you suddenly have insurance as a smart contract type generating a lot of proof about its relationship with the outside world as far as weather events and whether the insurance got paid out and the premiums end up going in and all these kind of dynamics you you end up with you you end up with a very kind of large and growing market thats very hungry for collateral that isnt cryptocurrencies and then then you have decentralized insurance appear and basically provide provide that to to to a huge demand right and so it it it makes sense to me that decentralized insurance is developed in a way to solve real-world problems and and in in certain cases cyber risk problems and certain other cases weather events and in many different cases where you can prove things with data of which there are more and more and then i think there is a huge opportunity to take all of that insurance and essentially sell it to a market as a final step right to securitize it and turn it into an asset that goes into a market and thats how insurance companies end up um getting their revenue right so thats thats thats a way that insurance companies that can underwrite the right risk and make the right relationships for cash flows can can have um a very well-earned kind of payday and the market can get collateral and and and thatll drive them to create even more insurance to the benefit of more people so its its kind of a cyclical process where i see d5 creating a market that accelerates the creation of insurance to the benefit of of really everybody at the end of the day um and so thats you know i think it has i think it has a role to play yeah absolutely i completely agree and we need new capital new types of risk that are hedged in uh non-traditional channels right completely completely agree so its its its exciting what what youre doing i im im im a huge fan and im really impressed by the fact that you you have this live and working in both developed markets and emerging markets and its its really very exciting for me that youre youre able to use the blockchain infrastructure for something that is so tied to peoples livelihood and tied to how they can manage their ability to succeed in an enterprise right and thats thats kind of a fundamental thing that i think people dont always fully get about insurance is that insurance enables people to like sail across oceans and open businesses and keep those businesses running when something negative happens and and things like that and and pursue their economic destiny so im im im im eager to hear like what what do you see happening next for our role how do you see that evolving you know what are what are some of the next steps or ideas that that you guys are are thinking through sure yeah so we uh you know we went uh live about six months ago weve done tens of millions of risk through the platform just in that time we have a footprint of you know thousands of farmers now on the platform and to us that was a starting point we have programs in u.s latin america uh southeast asia and we see ourselves expanding through to all the different regions in the world where you need this uh you know coverage so many parts of eastern europe australia south america you know and that only helps to further diversify the cash flows going back to your d5 point it only uh you know makes these cash flows more attractive the more diversification you can get so in the agriculture space we see a lot of opportunity in a lot of these regions and well be making a strong push in those but we actually see you know tremendous opportunity in a lot of different other industries and were already starting to make headway there because once you abstract it out to data driven payouts you know a lot of different data sets become open for coverage so for example in the renewable space if you have a wind uh farm or a solar farm you know you need you need coverage against things like cloud cover against wind speeds that make your cash flows volatile and increase your cost of capital so you know its a insurance can serve as a way to smooth out the cash flows and make renewable power more available for for someone trying to start one um you know on top of that we have uh products like were working on in the marine space so lots of the logistics like shipping and ports are often hit by weather delays and these delays then cascade into huge fines or costs for all the companies operating so you know we see maritime logistics in general as a big area as well and uh you know theres a number of different products were exploring in the small business interruption space you know storms hit your business that data is all there power outages and uh uh especially uh you know uh these days network downtime due to cyber issues or um cloud computing issues so we you know i see arbol as uh basically becoming a platform for um any type of data driven insurance growing into that and we just want to plant uh you know real live existing businesses in each area and the overall portfolio that comes out of it becomes more and more attractive to later securitize as we grow volumes and uh for us you know we the the opportunity set is uh is endless we just have to execute in each of these industries and it takes time because were working with a lot of old school industries but at the same time i think the rewards are great from a standpoint of just helping a huge number of people uh you know get coverage that just did not have before and give them some peace of mind as to at least you know we can cover droughts we can cover low wind speeds for a wind operator or we can cover too much rainfall for a port um and so you know theres a lot of these uh you know markets that we are heading into and for us you know a company like chain link is the uh you know chain link is uh going to be an integral part of building these oracles that what we were discussing before with regards to having data thats objective clear and uh secure uh you know using chain link to essentially link these different uh you know derivatives and insurance contracts as we grow from here yeah its its its very exciting i mean all the categories you just mentioned are are all categories that ive as as ive as i spent some time in the insurance industry talking to people about building smart contracts and and building these things all of these things just seemed so clearly um attainable to me and it seemed it seemed something that i i i just i just immediately thought that this is the way that this all should work right and i and so im im im truly thrilled to see a team like you and your caliber and your kind of seriousness and the approach that you have to building a platform that can plug in all these data sources have them evaluated within within a platform and and pay that out to various other kind of policyholders and all these other types of folks right thats thats thats an extremely impressive thing to me and i i think that the amount of data thats good thats going to continue appearing is is just going to grow i think that the amount of data that we will be able to properly validate through chain link and through our methodologies around how do you prove that an event happened in addition to having data right like i think theres one one level where its we have data and thats thats good and the data exists and then theres another level where the data has become sufficiently validated and sufficiently kind of provable and proven and a source of definitive truth in order to be usable in an insurance context and once once that data reaches that point is when i feel like you unlock some of these use cases is when you when you when you reach a point where yes now i can in an automated way trigger this policy because i am assured that this data input which is really like a a certain large even half per half of the policy right theres the logic of the policy and then theres the proof of what happened in relation to the policy and i mean even even aside from all the efficiencies in relation to claim management and all the transparency stuff that you get whenever you turn that insurance product into a tokenized some kind of like tokenized insurance that can be put into the market i think the the user experience is just so much clearer to me as how i would form a trust relationship with an insurance product right like if if if anyone had a choice between a trust relationship where there was a logo or there was a math based crypto cryptographically proven and kind of validated data-driven uh process thats what every rational actor would choose so i i can absolutely see this becoming the new standard in insurance and how people approach um managing their risk even even all over the world in in all of these categories so its its very exciting im im im very grateful that we can work with you and that were part of this together with you and its its its truly great to see progress being made in this industry in the way that youre doing it and its its its really a pleasure to chat with you about this and its its very impressive so so so thank you for working with us on this yeah thank you very much and i i see a lot more uh collaboration with chain link going forward as we expand into regions and products its been great wonderful In this discussion at LA Blockchain Summit, Arbol CEO and Chainlink Co-Founder Sergey Nazarov explore how blockchain-based parametric insurance is reliably automating traditional insurance processes and providing cryptographic guarantees around real-world data feeds and payouts for users relying on critical coverage. Sid Jha is the CEO of Arbol, a blockchain-based weather risk management solution that gives end users assurance that they will be paid quickly and automatically when adverse weather causes losses. Arbol integrates with the Chainlink Oracle Network to provide anyone with an Internet connection access to blockchain-enforced weather coverage that immediately settles based on weather data, allowing businesses and farmers all over the world to hedge against risk and expand their operations with full coverage against unforeseen weather events. Sergey Nazarov is the Co-Founder of Chainlink, the most widely adopted blockchain oracle network for powering universal smart contracts. With Chainlink, developers can connect any blockchain with high-quality data sources from other blockchains as well as real-world data. Managed by a global, decentralized community of hundreds of thousands of people, Chainlink is introducing a fairer model for contracts. Its network currently secures billions of dollars in value for smart contracts across the decentralized finance DeFi, insurance, and gaming ecosystems, among others. Chainlink is trusted by hundreds of organizations to deliver definitive truth via secure, reliable data feeds, from global enterprises SWIFT, Google, Oracle to development teams at the forefront of the smart contract economy Web3 Foundation, OpenZeppelin, OpenLaw, Hedera Hashgraph, Zilliqa, Synthetix, Aave, and many others. Learn more about Chainlink: Website: Twitter: Telegram: If you’re a developer, visit the developer documentation or join the technical discussion on Discord