InsTech London’s Henry Gale speaks to William Herkelrath, Enterprise Business Development Lead at Chainlink Labs, to discuss blockchain, parametric insurance and what Chainlink offers to the insurance industry.
Henry: What is the history of Chainlink Labs?
William: Financial transactions throughout history have required trust in centralised authorities such as financial institutions and governments. Chainlink Labs was founded in 2014 because we believe there should be no arbiter of truth or single point of failure - we saw the potential for blockchain technology to replace a reliance on trust with decentralised systems.
Chainlink Labs is the team behind Chainlink, a standard for building, accessing, and selling oracle services needed to power hybrid smart contracts on any blockchain. Chainlink oracle networks provide smart contracts with a way to reliably connect to any external API and leverage secure off-chain computations for enabling feature-rich applications. Chainlink currently secures tens of billions of dollars across DeFi, insurance, gaming, and other industries, and offers global enterprises and data providers a universal gateway to all blockchains.
Henry: What is your role and what does it involve?
William: As Enterprise Business Development Lead, I lead business development and enterprise partnerships.
Henry: Could you give a brief definition of blockchain?
William: In its simplest form, a blockchain is a database that multiple parties can access. It consists of a series of transactions visible to anyone and is used to store pieces of data. For example, one use case for blockchain is supply chain management. A particular item delivered to a warehouse at a specific time can be recorded as a transaction on a shared ledger. Instead of each party keeping their own record, they can all track items on the blockchain.
Henry: What are smart contracts?
William: Smart contracts are pieces of code that reside on a blockchain. Most contain “if-then” statements; if the smart contract’s condition is fulfilled, it triggers a transaction on the blockchain. Many smart contracts use a combination of complex “if-then” statements. In insurance, smart contracts can be used to trigger pay-outs to policyholders when they experience a loss or event covered by their insurance policy.
Henry: What is the blockchain oracle problem and how does Chainlink help solve it?
William: Blockchains are isolated databases and cannot interact with information that does not already exist on the blockchain. As a decentralised oracle network, Chainlink connects blockchains to “off-chain” computation and data, unlocking the ability for smart contracts to be triggered by real-world inputs such as weather data.
Transactions on a blockchain are immutable, meaning they are unable to be changed or reversed. Once a smart contract is triggered it cannot be un-triggered. Oracle solutions need to avoid communicating incorrect data to smart contracts and Chainlink does that by operating a decentralised network of oracles. Multiple oracles verify multiple data sources before the data reaches the smart contract, so there is no single point of failure.
Henry: What do you consider blockchain’s main use cases in insurance?
William: The main initial use case is parametric insurance. Parametric insurance is well suited to blockchain because parametric policies are structured as “if-then” statements, like smart contracts. If an event occurs, a pay-out is triggered.
One example is crop insurance in Africa offered by Chainlink user Etherisc. Farmers can purchase coverage that insures against a lack of rain. The smart contract triggers a pay-out if it rains less than a certain amount in a predefined period.
Another example is Ensuro, which is planning to launch parametric flight insurance. The Chainlink Network will verify whether and when flights take off and land by aggregating data from premium data sources. A definitive consensus on a flight’s status is then securely delivered to smart contracts. This enables insurance products that automatically reimburse passengers for delayed or cancelled flights.
Henry: What are the advantages of using blockchain for parametric insurance?
William: Blockchain can allow companies to sell insurance in markets where the cost would have been prohibitive in the past. For example, policy administration costs have previously made it difficult for crop microinsurance policies to be profitable in emerging economies. With blockchain-based crop insurance, premium payments and claims payments can be made on-chain through smart contracts. Although a legal framework and know-your-customer checks are required, there is no need for physical operations (buildings and staff on the ground). Insurers also do not need to employ people to monitor the weather because data providers operate Chainlink nodes, meaning that they bring weather data on-chain, which insurers can use to trigger pay-outs.
Henry: What are some of the insurance-focused blockchain applications using Chainlink?
William: Arbol, Etherisc, OTONOMI and Ensuro use the Chainlink Network to build parametric insurance smart contracts.
Arbol is a platform for parametric weather risk solutions while Etherisc recently launched a flight insurance product and is working on hurricane insurance as well. OTONOMI is a blockchain-powered MGA platform, and Ensuro enables liquidity pools for decentralised insurance products. Google Cloud and AccuWeather are among the companies that have made weather data available on the Chainlink Network.
Henry: What other enterprises are involved with Chainlink?
William: Chainlink has a growing community. Deutsche Telekom’s T-Systems is operating its own Chainlink Labs node infrastructure, meaning it will provide data to the Chainlink Network. Over the past year, we also announced new data providers including the Associated Press and Accuweather. Separately, we’ve spun up collaborations with Google Cloud Platform (GCP) (to give blockchains access to GCP’s datasets and computations) and Amazon Web Services (AWS), which now offers Quick Start for deploying a new Chainlink node.
Henry: What would you say to those who may be sceptical about the potential for blockchain to change insurance?
William: From my experience talking to the insurance industry, there is a philosophy of wanting to be a “fast follower”, or second to market. Insurers are waiting for blockchain-based insurance to become more widespread before getting involved. But there is an advantage to being a first mover. Existing insurance applications are using blockchain not to disrupt existing insurance markets, but to sell insurance in markets that are new to or underserved by insurance. These first movers will be well positioned as those markets grow.
Henry: Why did Chainlink Labs join InsTech London and what kind of companies would you like to connect with?
William: Chainlink Labs has joined InsTech London because we believe insurtech is an important market which can improve people’s lives. We’re eager to participate in events, get to know the community and connect with tech-minded companies in the industry
For more information on Chainlink, go to www.chainlinklabs.com