The Global Innovation Lab for Climate Finance
Nations, businesses, and investors are working to move toward a low-carbon, climate resilient economy. Many of the measures underpinning this transition, including energy efficiency, renewable energy, sustainable transport, climate smart agriculture, and curbing deforestation, face specific barriers to attracting investment.
By identifying, developing, and supporting transformative sustainable finance ideas, the Lab aims to drive billions of dollars of private investment to the low-carbon economy.
At scale, the instrument can potentially mobilize up to US$ 6 to 10 billion in annual premiums.
The instrument was proposed to the Lab by Sprout Insure, who is leading its development in partnership with ACRE Africa, a recognized intermediary for index insurance across sub-Saharan Africa, and Etherisc, a smart contract developer for different types of index insurance products.
The planned pilot will take place over two to four years, starting from April 2020, and will aim to insure 1.2 mn farmers in Kenya, who will be able to pay the insurance premiums in small installments as low as 50 cents.
At scale, the instrument can potentially mobilize up to US$ 6 to 10 billion in annual premiums. Sub-Saharan Africa provides the best opportunities for replication, especially Burkina Faso, Senegal, and Mali in West Africa and Kenya, Uganda, and Rwanda in East Africa. There is also significant potential in South Asia (India, Bangladesh, and Nepal) and Southeast Asia (Cambodia, Thailand, and the Philippines).
Blockchain Climate Risk Crop Insurance is a digital platform wherein crop insurance policies are plugged into smart contracts on a blockchain and indexed to local weather. During an extreme weather event, the policies are automatically triggered, which facilitates fair, transparent and timely payouts.
For farmers, the instrument reduces transaction costs during the processing of claims. The Lab estimates that in the long-term, an integrated insurance platform model can reduce the costs required to issue a policy by up to 41%, enabling a premium reduction of up to 30%. Reduced claim cycles, from 3 months to 1 week, and increased transparency also build trust amongst stakeholders.
On the supply side, by creating templates for blockchain-based insurance products, the platform gives third parties (insurers and beyond) the tools to create their own customized insurance product, enabling them to offer weather-indexed crop insurance at scale.