Insurance is a well-known industry that is widely used but riddled with challenges: expensive, confusing, and hard to access for many people. Applying for one is typically lengthy and tedious. Price can go way beyond budget, which is painful to accept when medical coverage is needed. A new breed of insurance enabled by blockchain technology is changing the game–enter microinsurance.

Essentially, microinsurance is insurance with low premiums, covering potentially up to billions of people at scale, especially for those who can’t afford regular insurance. Today, microinsurance products cover more than 290 million people globally, each having at least one policy. In addition, innovative technology plays a critical role in increasing the popularity and adoption of these products. For instance, mobile operators offering microinsurance products cover about 2.9 billion consumers in the Asia-Pacific region alone.

To widen the potential for highly scalable and affordable insurance policies, new technologies leveraging blockchain are disrupting traditional insurance. Here are three ways microinsurance is innovating the space.

Smart contracts enable faster and automated payouts

Microinsurance service providers can leverage smart contracts to process and react to information, including triggers that lead to payouts. Take, for example, flight delays where the event is covered by parametric insurance, or pre-specified payments based on real-world outcomes. In the event of a delay, the customer is automatically compensated with the predefined payment. Smart contracts autonomously do all of the work to validate the flight delay event and subsequently inform the insurance provider of the outcome. It cuts the manual human intervention previously required to save time and cost.

Another example is crop insurance. A typical farmer in any part of the world wants to cultivate a specific crop, even if it poses a risk of not doing well due to unfavorable weather conditions. Too much rainfall, for example, can permanently damage crops.

In that case, the farmer will purchase a specific microinsurance product that covers rainfall risk. In traditional insurance, an agent from the firm has to visit the farmer to determine how they can get the premium from the farmer and pay it back in case the insured event gets triggered. This only increases the costs of the policy cover, marred with various red tapes. However, smart contracts can trustlessly determine if rainfall exceeds more than 5 cm in a particular week for instance, in which the farmer can receive protection through fast automated payouts.

Third-party blockchain network facilitators, such as Chainlink Labs, can empower oracles around the globe to simplify the claim process in microinsurance. Using the crop example, oracles can verify how much rain falls seasonally in a given location and validate it by a network of data providers.

“It’s really an exciting world that we live in, where advanced smart contract oracles can do much of the work and underwriters no longer have to manually verify the insured events. Oracles allow insurance providers to offer far lower premiums with faster settlements that ultimately benefits the end consumer,” says William Herkelrath, Managing Director at Chainlink Labs.

Tapping into new sources of capital

Everyone likes to pay less. Unlike traditional insurance, microinsurance, in general, requires much lower premiums. In many traditional insurance coverages, you have the insurance provider investigating the claim before deciding the amount to pay out to the consumer. This process is often painfully slow, messy, and frustrating. Creating risk models for compensation under this framework can be challenging for companies, primarily if they rely on outdated technologies. Capital to cover risk is collected from limited sources in the current system.

Decentralized capital providers such as Ensuro are solving this problem by leveraging blockchain. “We are combining the ability from blockchain technology to collect capital from different DeFi liquidity providers and invest the capital inside a liquidity group that is governed by smart contracts,” says Marco Mirabella, CEO at Ensuro.

Creating liquidity pools will provide microinsurance companies with greater underwriting capacity to create various risk models and distribute them to more policyholders. “A key advantage is that decentralized insurance can attract funding from institutions as well as retail investors. Thus millions of individuals can participate, even with a few hundred dollars, to create a collective pool of capital worth billions of dollars,” shares Mirabella.

Investors who contribute funds to decentralized pools in return earn rewards for sharing underwriting risk. This brings in new streams of capital resources for traditional insurance and reinsurance providers to utilize.

The key enablers for access to microinsurance

Apart from enabling faster payouts and tapping into new capital sources, blockchain also serves as a bridge in distributing microinsurance products from service providers to end-users. With this new service on the rise, it’s important to define standards and make it economical for consumers to access them, such as through e-wallets.

However, many digital wallets don’t have the means to connect thousands of microinsurance products to their apps. Thus, there is a need for middle-layer connectors to make efficient microinsurance distribution possible. This is where connectors like Verso Finance, a decentralized marketplace for financial products, become crucial.

“Utilizing blockchain as a foundation for a new distribution standard of financial products is a game-changer: it enables, for example, an insurance provider to plug into a network of participating wallets without the need to sign lengthy agreements, solving how data gets exchanged or performing due diligence on every other party. Verso brings a trustless “direct-to-wallet” distribution gateway to the financial service industry, which will make financial products more widely and conveniently accessible across markets,” says Gregor Arn, CEO at Verso Finance.

Blockchain underpins the important technical component to making microinsurance possible, however deep collaboration is still key to success. “In microinsurance, it is vital that various service providers, connectors, and capital providers all work together to bring insurance services to the end-user in a highly efficient manner,” shares Herkelrath.

Disruption as a form of innovation

The average consumer seeks affordable insurance policies with more choices. Whether it’s coverage for health conditions or travel, microinsurance products bring more options and allow people around the globe to pick what and when they need it. “Helping traditional insurance companies to transition from a broker-based distribution model to a “direct-to-wallet” approach increases compatibility between DeFi and traditional finance, This results in existing insurance firms to leverage decentralized risk pools from DeFi for new products. Essentially, it pushes the envelope of product innovation to new dimensions,” concludes Arn.


The Human & Machine podcast is dedicated to inform and demystify the crypto, DeFi, GameFi, NFTs and blockchain industries for the average person.

Tlahui is a man in love with words and blockchain. His storytelling and passion to communicate led him to co-host The Human & Machine, a podcast and YouTube channel. Where he rightfully plays the role of an average-minded Human trying to understand and explain in layman terms, the lingo and complexities thrown at him by The Machine, his heartless, yet brilliant co-host.

Hikaru is a blockchain lover with a weakness for cooking. His outstanding understanding and experience in blockchain technologies, plus his unhuman work ethic have earned him the nickname of The Machine. In the show, he plays the role of a hybrid all-knowing robot that goes out of his way to explain blockchain concepts to The Human while trying not to lose faith in humanity.

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