This article is about a cross border peer to peer risk transfer platform to help vulnerable communities in the aftermath of natural disasters.
- why to build a p2p platform like that ? because it’s important and there is a gap.
Being vulnerable means susceptible to being hurt and indeed most of the communities exposed to risks across the world get hurt during natural disasters. Thankfully not all them get hit at once and although this sounds like an insurance opportunity, penetration of insurance within vulnerable communities remains extremely low and the scope of alternative risk transfer mechanisms like catastrophe bonds is very limited due to the complexity in the issuance and operation besides never reaching directly the last mile affected.
2) who would build a peer to peer risk transfer platform? People who care
I’m proud to be part of a group of entrepreneurs who for the last years has been working closely with migrant workers in the United States, trying to decipher their cash flows and give them tools to cope with their particular financial challenges. Migrants come from very vulnerable communities and remain financially vulnerable while living in the US . One of the well known reasons for this is the lack of financial planning (including purchase of Insurance); For several months we have been talking to insurers, brokers and assistance companies in Mexico and United States, exploring ways to embed simple policies into wallets and other utilized money transfer tools but having limited or no success in the mission. We’ve learned that although adoption is never easy, the central issue is how hard the design process / iteration of a new insurance product is due to the fact that insurance companies are slow, heavily regulated, bureaucratic and ironically very risk averse.
Take as an example this man who was in front of me in a Western Union shop in San Mateo. He is making an unexpected transfer of money of around 2k USD to his family in Cuernavaca Morelos. Damages caused by the earthquake that hit Mexico on the 19th of September 2017 turned the house uninhabitable. These recurring earthquakes translate into economic shocks which prevent people from making progress. The need to transfer risk somewhere out of poor communities is badly needed but as I mentioned, existing mechanisms are limited and never reach the average Juan’s pockets. But how to “uberize” the Cat Bond industry? , where can we transfer the risk to? Enter new markets and investors, enter digital assets exchanges.
Consuelo is a marketplace connecting avid investors with underserved people, trying to turn gamblers into reinsurers. We have decided to build it on stellar which is a platform that facilitates the issuance and exchange of digital assets . We chose stellar because it fulfills a lot of the needs we initially perceived, the most important one being the capability to build a transparent, fiat compatible platform with a proof-of-solvency system. Transparency is achieved by showing the aggregate financial exposure, so the potential total loss is public on the stellar ledger. The second important requirement linked to the first one is proving solvency which is achieved by holding a reserve in XLM the native stellar currency. In this initial stage all coverages are over collateralized leveraging the bonanza of the cryptocurrency space and eliminating any concern about solvency. A last requirement is to have these P2P policies denominated in stable coins (alias fiat currencies, alias USD, EUR, MXN not BTC nor ETH) and platforms like Ethereum are demonstrating to be more suitable for pure cryptocurrency projects rather than for projects trying to plug into existing financial systems. An open ecosystem like the one around stellar offers the possibility to leverage other other projects’ efforts reflected in many order books with fiat currencies listed across different countries where many vulnerable communities live.
The company behind the effort is called rainvow, we are honored to be backed by BoostVC, an accelerator in Silicon Valley supporting Blockchain companies. We started in 2016 to work on a prototype of a weather related parametric insurance called rainvow.org built on Ethereum where we learned that no expensive computations nor complex smart contracts were needed to achieve our main goals. Not to mention that putting information reliably on a blockchain-based contract about a real world event (to justify the use and costs) is a very hard problem yet to be solved; Then we made a second prototype we named The Fortune Cat where we learned the average Juan will not go crypto any time soon and that Ether is not as stable as the US dollar just yet. Since then we have been narrowing our vision down to what consuelo is now. Third time is a charm
The technicalities and regulation aspects will be described in the next post. Strangely our first assistance policy turned into our first claim and all of our energy is on the last mile execution of it in a community called Atlixco Puebla near the epicenter of the last earthquake in Mexico, whose municipality became our first client few months ago. I wanted to take some time to start sharing what we are working on as I believe is meaningful and hoping talent out there would like to get involved. We want to see this platform, once fully open, to be widely adopted not only in Latin America but also in Asia and Oceania etc where a lot of people remain vulnerable.