Climate-related uncertainty is leading to more unpredictable seaway conditions such as low or high water levels. Changing water levels can result in the temporary closure of significant shipping seaway channels. The market will adjust, but eventually, the cost will become uneconomical for some businesses to stay open. For example, an estimated $193 million is lost per week in the U.S. economy if the St. Lawrence Seaway temporarily closes.
Parametric Water-Level Insurance would disrupt that market by making modern life for inland marine cargo transportation businesses more manageable during the times that matter most by providing a 21st-century insurance solution to help support them with adapting to the effects of a changing climate.
Figure 1: Last year, the St. Lawrence Seaway channel was closed for 12 days costing the U.S. economy an estimated $331 million.
We scoured market research and read published literature to understand the problem better. I learned in more detail about Chainlink and APIs’ technical constraints and conducted two unstructured interviews with insurance agents. We discovered a water-level named-peril parametric insurance product could be useful for primary and secondary supply chain infrastructures impacted by seaway water fluctuation, such as perishable goods manufacturers, commercial shippers, steel manufacturers, miners, construction companies, etc.
After identifying the potential market opportunities, we used a SWOT Analysis to determine our ideas’ strengths and weaknesses. As a result, we formed a list of design requirements to narrow our project’s scope with our ideas and insights. Then we created a Business Model Canvas while considering the scope of the hackathon.
Figure 2: With parametric insurance, a loss is triggered by a specific automated event, starting the smart contract's automatic execution on the blockchain. If a shipping channel's water level is outside the pre-agreed upon a water-level range, the insurance policyholder will receive a daily payment instantly for loss of business as the conditions for the contract are set based on predetermined data points.
Fortunately, our solution paves the way for consumer-centric, self-executing, decentralized marine insurance products using real-time data and executing smart contracts. After identifying a need in the $30B marine insurance industry, we created a Water-level named-peril parametric insurance product for inland waterway transportation using parametric insurance and smart contracts. I created a detailed user journey map, a site map and designed high fidelity user interface wireframes on Figma to aid development. Then I gathered feedback from insurance agents to improve the prototype.
Figure 3: The architecture of the marine shipping insurance smart contract and oracle logic.
We developed a named-peril parametric water-level insurance policy that offers a decentralized, reliable, financial risk management solution for commercial shipping companies. Built using Chainlink and stormglass.io for API data, the smart contract executes based on water levels for a particular seaway reaching a certain threshold.
If the water levels are above or below these pre-established levels, the smart contract executes, and the claimant receives payout via Ethereum. Thus, helping commercial shipping companies mitigate financial risk from unexpected changes in their shipping operations.
Our team used a Chainlink External Adapter to connect a marine shipping water level API to a Chainlink oracle to create a parametric insurance product for maritime shipping. Chainlink is a project that helps with the real-world adoption of blockchain by enabling smart contracts to connect with real-world data, events, and payments in a secure and trusted manner.
For me, it was another awesome virtual learning experience working with some very talented team members from the US, Canada, and Mexico. Together as a team for the first time, we identified a real-world problem with the potential to disrupt an industry and collaborated to build that innovative solution. We all learned about smart contracts’ potential to disrupt the insurance industry and how Chainlink allows for entire business processes to become automated on the blockchain. By collaborating with blockchain developers, I learned how to design a user-centered user interface around the blockchain’s technical constraints.