Introducing Rainy Day — A Blockchain-Based Insurance Game
We have talked a lot in recent articles on how the blockchain can revolutionize the insurance industry. After much theoretical musing on token economies, blockchain governance, regulatory compliance, and enterprise blockchain architectures, it is time to get practical and show a real example.
Betting on Bad Weather
The concept of the Rainy Day insurance game is simple: Users can choose a location (a city). On any day it rains more than 10mm in this city, a claim is processed and the user is compensated with 1 BLCK token, Black Insurance’s own platform token.
Now, you may say that this is not an insurance. And your partially right. Of course, this is not an official insurance product. Rainy Day is a game that demonstrates both, the concept, and the technical implementation, of insurance policies implemented in smart contracts on a blockchain.
When a user chooses his or her city, a smart contract is deployed on the underlying Hyperledger Fabric blockchain. Every 24 hours, this smart contract receives weather data from an external data source. If sufficient rain has been measured at the location, the smart contract executes a claim, reserving 1 BLCK token for the “policyholder”.
In a way, this is exactly how an insurance works. A policy is created with a certain coverage for events occurring under certain circumstance. In this case, a defined amount of rain at a certain location. Once this condition is fulfilled a claim can be made. Implementing the policy as a smart contract introduces the benefits of automation. Claims can automatically be processed and verified, and payments are made.
Thus, Rainy Day demonstrates a number of concepts of the Black Insurance platform and blockchain-based insurances in general:
- Automation: Implementing the policy as a smart contract is a way of automating processes. It takes the human out of the loop to some extent. Of course, there will always be a need for expert intervention in the insurance business but deciding whether it rains or not is an automatable decision.
- Impartiality: The insurance provider and the client agree on an impartial way of deciding on claims. Once the contract is deployed either party are bound to their decision. Payouts merely depend on the chosen location and the weather data. Neither the client nor the insurance provider can manipulate this.
- External Data-feeds: The policy uses external data feeds to get information relevant to claims. In his case, weather data for the location is pulled every 24 hours.
- Automatic Payouts: Payouts for low-impact claims can be automated. Of course, larger payments and more complex claims require additional processes, such as human intervention for fraud detection. However, many smaller claims can be paid out automatically, especially if arbitration is provided by automated and impartial data feeds.
- Innovative Products: Rainy day is a game, but it is also a very good example of the type of insurance products that become possible with the Black Insurance platform. By simplifying product launch and moving this process closer to the end-users, product designers are given the unique opportunity to create new types of products. Insuring against bad weather can actually be very useful. Imagine a more elaborate Rainy Day insurance that allows event organizers to manage the risk of bad weather cancelations.
Rainy Day is implemented on top of a Hyper Ledger Fabric blockchain. Each time a user bets on a location, a new smart contract (or “chaincode” in Hyperledger Fabric terminology) is deployed. The chaincode presents few entry points but allows a weather oracle to call in, provide weather data and launch automatic claim execution.
As we have discussed before, the Black Insurance Hyperledger Fabric blockchain is linked to the public Ethereum network. A gateway oracle, using Hyperledger Quilt, allows moving tokens from chain to the other atomically.
In this particular case tokens gained by rainy weather will be paid out over the Ethereum network on the 10th of December.
More to Come
Rainy Day is the first example of how the Black Insurance platform can be used to provide automated and innovative insurance products. Of course, the game is a proof of concept, rather than a real insurance policy. It does, however, showcase many features of the Black Insurance platform, including the Blockchain deployment paradigm, the oracle integration, and the way claims are processed.