In Africa alone, there are around 300 million smallholder farmers, the majority of whom aren’t financially protected against crippling climate risks such as floods and drought. Smallholder farmers are especially vulnerable to drought because many don’t have access to irrigation technology and rely on rainfall for their crops.

For insurance companies that rely on traditional tools for distribution, pricing, and claim handling, protecting smallholder farmers from devastating climate events often isn’t financially viable.

The Lemonade Crypto Climate Coalition, funded by the Lemonade Foundation, was formed to tackle this problem by solving three main challenges: accurately quantifying weather risks; automating claim assessment; and providing adequate funding and reinsurance.

The Lemonade Crypto Climate Coalition brings together industry-leading partners with expertise in various fields to work together on solving these challenges. Avalanche, Chainlink, and DAOstack will contribute their vast knowledge of blockchain technology while Lemonade, Etherisc, Hannover Re, Pula, Tomorrow.io, and TomorrowNow.org will build highly accurate, fully automated weather insurance models.

The coalition was constituted as a Decentralized Autonomous Organization (DAO), dedicated to building and distributing insurance at-cost, based on an eco-friendly, proof-of-stake blockchain.

By parametrically measuring the amount of rain, or lack thereof, in an insured field of crops, smart contracts will trigger flood or drought claims automatically, paying farmers without them ever needing to file a claim. The use of autonomous smart contracts and highly accurate weather feeds bring the cost of handling claims down to zero.

Using the blockchain as a platform, a capital pool will be created to provide insurance capacity. Crypto investors will be able to stake capital in the pool, and potentially receive a share of the premium paid by farmers. Using blockchain in this way will substantially reduce the cost of capital and reinsurance, lowering the cost of insurance even further.

How come it is eco-friendly?

Lemonade is well aware of the ecological impact of many traditional blockchains, and appears equally keen to avoid them. Its insurance product will run on the Avalanche blockchain, which is designed to be low cost and environmentally friendly.

Lemonade is partnering with Pula, a Kenyan company that has for years been operating across Africa to provide microfinancing solutions to farmers. If Pula can deliver on its promises and convince users to sign up, it could be a chance for blockchain to undo some of the harm it’s done to the planet. The first pilot started in Kenya a few weeks ago.

Sources: Lemonade Foundation; Fastcompany.com.