The foundation of the American insurtech Lemonade announced on Tuesday the creation of an initiative in the field of agricultural insurance. First project of the non-profit organization financed by the founders of Lemonade, it is a crop insurance intended for “vulnerable” farmers in developing countries, particularly in Africa.
Compensation in stablecoins
This parametric insurance (a model which consists in automatically compensating according to the fulfillment of predetermined conditions, and not on the basis of a declaration of loss) at cost price will work on the Avalanche blockchain, thanks to smart contracts which will be triggered according to weather events. Payment of premiums and compensation may be made in stablecoins (USDC and DAI, backed by the dollar) or in local currency. The product will thus be usable by unbanked farmers.
The contours of the project, called Lemonade Crypto Climate Coalition, are still unclear. We know that the “coalition”, which brings together the Lemonade Foundation, Avalanche, Chainlink (an organization that powers smart contracts), DAOstack, Etherisc (decentralized insurance applications), the reinsurer Hannover Re, the Kenyan agricultural insurtech Pula, and Tomorrow.io (weather API), is constituted as a DAO (decentralized autonomous organization) mainly financed by the Lemonade foundation .
Beyond being the preferred form of governance for blockchain players, its strengths are unclear. In theory, the goal is that any cryptocurrency investor can fund the pool. In addition, we do not know the maximum amounts reimbursable by the insurance, nor the costs for farmers, which will vary according to crops and regions.
Questions about the model
Blockchain-based parametric insurance is not yet proven. In 2019, Axa ended its product covering flight delays. As for agricultural insurance, it is a loss-making branch, in France for example, which has been even more battered in recent years due to climate change. It is not said that the blockchain solves these problems.
The founders of Lemonade created their foundation, independent of insurtech, before the IPO of the company. Despite its growth, the American insurer specializing in comprehensive home insurance continues to lose money. Its share price on the New York Stock Exchange has fallen 85% since its high in January 2021.