This autonomous insurance from space is an agricultural risk game-changer

Ibisa is changing the way risk sharing works

Planet Earth, at the time of writing, is home to 7.6 billion people and projected to reach more than 11 billion before the century is over. We have long begun feeling the effects of tremendous population growth, which poses some unique questions that will have to be answered very soon.

Never before in the history of humankind has there been such pressure to innovate in order to feed the populace while at the same time preserving the environment, to do more with less.

Anthropogenic climate change is a reality that has only just finished sinking into our collective consciousness. Current climate change brought El Niño type extreme weather to regions that were deemed safe harbours only a decade ago. Cyclones, floods and freezing temperatures on one hand, soil erosion, diminishing freshwater reserves and extreme heat on the other.

We truly live in an age where we have powerful enough tools to change how the underlying ecological and geographic system of our planet works — the so called Anthropocene — we’ve used those tools to our advantage short term, just not in the long run.

But clearly, sustainable alternatives to manufacturing, transport and farming solutions are the future. The only one we have. Agriculture especially has traditionally been very inefficient and a whole slew of innovative technologies and methodologies are trying as best they can to bring about change. But to actually deliver this change on a global scale is at least a generational task and likely even a task for the whole century.

Meanwhile though, farmers worldwide are left holding the bag as they see extreme weather disrupt their source of income, while getting blamed for mismanagement of resources. Protecting them is in everybody’s self interest, since the disruption of food sources on a grand scale is a possible threat.

While the large, vertically integrated farms of industrialized nations are largely protected by insurance, smallholder farmers of emerging economies are typically not; and remain very vulnerable to crop damage. Protecting them in a meaningful way using blockchain technology and satellite imagery, is the mission statement of Ibisa, an ambitious new project emerging from BitBank Luxembourg.


Interview with Maria Mateo

Maria Mateo

Maria Mateo is Ibisa’s resident cryptoeconomics & space expert. She is also a Co-Founder of the company. Maria sat down with us to explain in detail what Ibisa does.

W: Tell me a little about yourself and how you came to work on Ibisa?

I worked in telecommunications engineering and for fourteen years have been in the satellite industry. When I discovered blockchain technology in 2015, I became really passionate about the possibilities that it offered. We opened up our company in Luxembourg to provide services around blockchain like training and awareness programs — also consultancy and development of proof-of-concept software. We wanted to accelerate the adoption and understanding of blockchain beyond the hype of Bitcoin and Ethereum.

I’m also a smallholder farmer, since I tend a lemon orchard back in my hometown in Spain. It’s a family business, where we have never used insurance. We use a different mitigation technique called “risk sharing” that was an instrumental inspiration for Ibisa.

The reason that we weren’t buying insurance, is that the cost for it, due to all the overhead in the brokerage chain, was way above what could reasonably be expected as a payout in case of a damage claim.

Last summer I had the chance to train several insurance companies in blockchain awareness design thinking. This is where I discovered the inner workings of the insurance industry, like intermediaries and all the processes typically found in an insurance. It was a big “Aha!”-moment for me to find out, I could actually use blockchain technology to create an insurance product that is more appealing for smallholder farmers.

With that idea in mind, we met with Annette Houtekamer from the Netherlands, a recognized expert in mutual agricultural insurance, who promptly joined our team. Together we defined Ibisa and presented it to the government of Luxembourg and the European Space Agency and received funding and support for the first stage of our project.

W: How would you summarize what Ibisa does exactly?

Ibisa is a marketplace that enables mutual risk sharing. The key word here is mutual. What Ibisa does, is enable the flow of risk sharing help between farmers worldwide.

Ibisa’s modernized version of “risk sharing” works as such: 1. Each farmer sets aside a small amount of virtual currency, whenever he can afford it, in his personal Ibisa wallet. 2. In case of a calamity, “watchers” worldwide assess the damage –using actionable Earth Observation data– and decide on the indemnity. 3. Each farmer contributes in part to indemnify each victim directly (peer-to-peer).

W: What made you go into agri-insurance with a high tech product?

Basically, it was the only way. When the problems are difficult to solve in the 21 century, you look to technology to break down barriers. The traditional way of doing things is very manpower intensive and has lots of intermediaries in its value chain. It is very time consuming and too expensive for smallholder farmers to obtain insurance that way.

Instead what they do is, employ risk mitigation schemes like multi cropping, use low risk crops or save some of the crops in case they have issues during the season.

Smallholder farmers clearly don’t get value for money in traditional insurance. So for us it was all about keeping transaction cost and overhead down to a minimum in order to create a product that is attractive for these farmers and the way to do it is automation through technology.

W: How technologized is agriculture of smallholder farmers today?

We are targeting developing countries, so they are not typically very favoured in terms of technology. There are a lot of initiatives going on around the topics of smart farming, smart irrigation, carbon credit as well as incentives to grow high profitability crops but all of these are pretty difficult to scale and typically they are in a prototype stage.

Our product is designed to work in a way that ensures, that the farmer does not have to know about which kind of state of the art technology we use and how everything is done behind the scenes.

She, or someone in his community who is helping him, needs to be literate though and understand that what we offer is mutual risk sharing. He also must be able to transfer some mobile money — and this, mobile money, is already a technology that is very widely used among smallholder farmers today.

In case of damage, our system will automatically transfer funds to the wallet of the affected farmer even during the ongoing season in small partial payouts, as soon as a potential issue is detected. There is also no claims process. Everything is settled using satellite imagery, diverse sources of data and blockchain. We also provide a flexible way of contributing to this risk sharing pool.

With nearly all previously manual parts automated, the result is a product with up to 60% reduction in overheads on premiums.

W: Can you briefly explain what a “Decentralized Autonomous Organization” is and why you have chosen this organizational structure for Ibisa?

The first and foremost criterion for Ibisa is low fees. And in order to be sustainable while maintaining low fees, we need to scale. These are the two principal drivers for the decision making process towards a DAO.

Our current company is not going to do all the work, but instead is going to be operated by many stakeholders. These stakeholders in turn will organize themselves autonomously through the DAO. So even when a stakeholder decides to leave the organization it can still operate because there is no single point of failure.

Each stakeholder is in charge of running his own operation and is rewarded for his effort in a fair way in relation to his contribution to the marketplace. Nobody will have a centralized authority. All the decisions are made by the community of stakeholders by exercising their voting rights. These stakeholders will also decide on the evolution of the marketplace and the new products that might get added eventually, like microfinance or credits for sustainable farming etc.

W: How many smallholder farmers have access to crop protection insurance today?

Statistics from the Microinsurance Network show that the current percentage of smallholder farmers that have insurance cover is around 0.5% to 0.7%. That is nothing. And that is simply because it’s too expensive. Studies have shown that the percentage of coverage increases a lot when governments subsidize it, or when it is made mandatory to obtain a loan, or both, but once the subsidies stop, coverage rates go flat again.

Climate change is very obvious for these farmers. We’ve been asked repeatedly by farmers in Kenya when our system will be up and running, because they want to have insurance for their crops. There is a definite demand for insurance there, that remains unfulfilled and that grows at a rapid pace.

W: How will your business model enable more people to take advantage of insurance protection?

Currently, because of all the intermediaries and costly processes within a traditional insurance the usual loading on top of the actuarial premium is 70% up to 420% (See Table 1, Cole et al., 2013) and that is huge. With Ibisa we are aiming for a loading of 20% to 25%.

With that, our product will have the same value proposition as the ancestral risk sharing techniques that, in the age of climate change, are no longer viable. These old mitigation techniques fail once everybody from one community is affected — the community of risk sharers must be globally distributed in order to minimize the risks.

This will unlock a market that today is not ready to go for traditional insurance. Because those people do not usually go for insurance their risk profile is very high and no credit institute is willing to provide credit to them. so we will not only unlock crop protection for them but instead we are going to unlock credit as well, once when they join the global IBISA risk sharing community; and because they have these credit lines available to them they will be able to increase their profitability by buying more seeds or investing into equipment. So it is really the first step for smallholder farmers towards having an opportunity to improve agriculture and open the door for new business.

W: In which geographies do you see the most immediate possible impact of Ibisa?

To launch the product we will need to deploy at least at two very distinct geographical locations with decorrelated weather phenomena. So that if one site is affected, the other is not and this balances out the damages.

The countries that see the most impact of our products are the ones that are most affected by climate change. We are looking at Bangladesh as one of the first locations to deploy.

A key problem here is that insurance in developing countries is seen as a bit of black magic. People don’t see the value that insurance brings. Bangladesh will be a place where we can demonstrate the value of our product very quickly, because we will be capable of doing partial pay-outs during a season and not only after harvest at the end of the season. Also at least partial payouts will happen very quickly after the damage, so that farmers are able to buy more crops or at least have the money to buy food in order to survive.

W: What impact overall do you hope for?

Firstly it’s about helping farmers to have a more predictable income, so that they get peace of mind. Also it’s the way to improve food security. Once those bases are covered we provide a way for the farmer to go beyond basic agriculture and move on to more profitable crops. With more security they can afford to take a little entrepreneurial risk in order to maximise their potential earnings.

W: How do you earn money from running Ibisa?

Since we are an autonomous decentralized organization it is true that we start Ibisa, but as soon as it is running we are going to be just one stakeholder among many. Ibisa is going to be run by all of the stakeholders and our business model is very simple. The farmers contribute to their coverage and from that we take 20% — these are the fees that are split among all stakeholders.

W: Which Blockchain technology do you use?

Currently we are using a private Ethereum blockchain. But we see that the evolution of blockchains is going towards interledger protocols and in the future we want to become more independent of the underlying blockchains. The goal is to have more than just one chain-specific implementation of our Ibisa network interoperable between chains for our marketplace. It could be on top of Ethereum or NEO or Fabric for example.

W: Where is your roadmap taking you?

By the end of July ’18 the first prototype will be ready for testing by our different partners and stakeholders. We will then fine-tune and move towards an MVP launch in Q1 2019 with at least two pilot countries — at the moment this is Bangladesh and Kenya. Then we want to start a wider rollout towards the end of 2019.