How Blockchain Can Revolutionize Parametric Insurance

TL;DR

Parametric insurance + blockchain = near-instant claim payouts. The biggest opportunities aren't in disasters, but in untapped markets like maritime shipping delays and event cancellations. #VentureStep #Insurtech #Blockchain

INTRODUCTION

The traditional insurance industry is built on a model that is often slow, complex, and frustrating for customers. Filing a claim can trigger a weeks- or even months-long process of inspections, paperwork, and administrative hurdles before a payout is ever seen. This inherent friction creates a massive opportunity for disruption. What if claims could be verified and paid out not in months, but in minutes? This is the promise of parametric insurance, a model that pays based on predefined, verifiable data points rather than subjective loss assessments.

In this episode of Venture Step, Dalton Anderson follows up on his "SUS Learnings" series, applying the idea-generation framework from Y Combinator's Startup School to his own area of expertise: data and insurance. He methodically explores the concept of parametric insurance, breaking down how it differs from traditional models and why it offers a fundamentally better customer experience through speed and transparency.

Dalton then dives into a rigorous analysis of potential markets where this model could be applied, moving from established areas like natural disasters to less obvious, high-potential verticals. He identifies two standout opportunities—maritime shipping delays and event cancellations—and outlines how they could be revolutionized by combining parametric triggers with the power of blockchain smart contracts using platforms like Solana and Chainlink to create a truly automated, trustworthy, and efficient insurance product.

KEY TAKEAWAYS

• Parametric insurance pays claims based on predefined metrics (e.g., two inches of rain), not lengthy damage assessments, making it faster and clearer than traditional models. ¹¹
• Combining parametric triggers with blockchain smart contracts can automate payouts to be nearly instantaneous, eliminating administrative friction and delays. ²²²²²
• The most promising untapped markets for parametric insurance are not in saturated spaces like natural disasters, but in areas like supply chain disruption and event cancellation. ³³³
• The maritime shipping industry sees over 56% of its vessels delayed, yet current insurance coverage for these events is minimal, representing a massive market opportunity. ⁴⁴⁴
• Blockchain platforms like Solana, built for high-throughput and low-cost transactions, are a better technological fit for insurance applications than value-focused, deflationary coins. ⁵⁵⁵

FULL CONVERSATION

Dalton Anderson: Welcome to Venture Step, where we discuss entrepreneurship, industry trends, and the occasional book review. ⁶In this episode, I'm following up on my previous episode from a couple of weeks ago called SUS Learnings. ⁷

What is SUS Learnings?

Dalton Anderson: If you're not familiar, I suggest you go back to the original SUS Learnings episode, as this is going to be a series. ⁸SUS Learnings is the Startup School, a program offered by Y Combinator. ⁹It's a free course on how to build a startup. ¹⁰The first section I completed covered why you should not start a startup, who it's for, and the pros and cons of the venture. ¹¹The next part is about how you know you have a good idea and what you should look for. ¹²

In that episode, I discussed their seven-step idea recipe. ¹³If you can satisfy a few of those steps, you probably have a pretty good idea. ¹⁴So in this episode, I've used that recipe to find an idea space and some potential opportunities for me to pursue. ¹⁵I have experience in data and insurance, so that's a good space for me. ¹⁶

What is Parametric Insurance?

Dalton Anderson: Today, we're going to be discussing parametric insurance, which is a little different than traditional insurance. ¹⁷With traditional insurance, you file a claim. ¹⁸If it's a homeowner's policy, somebody comes out to look at the home, determines the loss amount, goes through their claim system, writes up notes, and files everything. ¹⁹By the time that all happens, it could be weeks, or if it's a very complex claim, it might take months. ²⁰It could take over 30 days to get paid. ²¹

Parametric insurance is a little different. You have a pre-agreed upon metric, like say that you have some sporting event that you're hosting and if it's over two inches worth of rain, you will have a loss of revenue because not as many people are going to go. ²²

You could get parametric coverage on that and say, "When there are two inches or more of rain in one day during my sporting event in my specified area, then I'll get money." ²³With parametric insurance, you still have to file losses, or sometimes it's automated with an API, but it's still manually underwritten. ²⁴ From there, the payment is processed. You're getting paid in two to seven days, which is substantially faster than traditional insurance. ²⁵

How Technology Can Make Parametric Payouts Instant

Dalton Anderson: Now we have an emergence of technology that allows payments to be processed much faster, able to verify claims within minutes, not days or weeks. ²⁶Traditional insurance has its place, but there's also space for parametric insurance to work. ²⁷Parametric insurance isn't necessarily untapped, but it's untapped in certain areas. ²⁸For example, California has a pretty good parametric program for earthquakes. ²⁹There's also some cool stuff with blockchain and smart contracts in Africa related to crop yields. ³⁰

Basically, that's the only application I could find that utilizes this new technology to enable the execution of parametric insurance to be near-instant versus waiting a week or so. ³¹I thought that was pretty interesting that people haven't caught on yet. ³²

We know in insurance that blockchain and smart contracts would be great for insurance in certain applications, but we haven't seen any actual real-world attempts at this. ³³

I think that's a factor of people working in insurance not being that technical. ³⁴ The folks that could implement smart contracts aren't working in insurance. But it hasn't been done, and the efficiency gains you would get are immense, both from customer satisfaction and from being able to process these things without the administrative burden. ³⁵

The Pros and Cons of Parametric Insurance

Dalton Anderson: I talked about the benefits of parametric insurance: it's a predefined metric that, if achieved, results in a payment. ³⁶ It makes it very clear to the insured. I hear all the time that people get confused about what's paid and what's not. ³⁷A big thing that happens in Florida is that people get insurance and then realize their policy doesn't cover flood after their house floods. ³⁸The insured normally doesn't really know what's in the contract because they're not reading 100-page documents full of legal jargon. ^39393939With a predefined metric, it's simple: either it rains two inches and you get paid, or it doesn't and you don't. ⁴⁰

The simplicity and the speed of payment, I think, would be a welcomed addition to the insurance world, especially for things that are particularly challenging. ⁴¹

But there are challenges. One issue is that you could have a loss occur, but no money will be paid out because it didn't meet the metric. 42Or, the metric could be met and a payment is made, but your actual loss isn't the same as what was paid out. 43Also, parametric insurance is typically something that comes over the top; you're not going to have full coverage because it's not a full coverage policy. 44If a child got hurt in your yard, you wouldn't have coverage because the policy is only for two inches of rain. 45

Analyzing Potential Startup Idea Spaces

Dalton Anderson: I used AI to help me research these topics, reading over a hundred pages about crypto, blockchain, smart contracts, and parametric insurance in different areas. ⁴⁶Natural disasters are a well-played-out area for parametric insurance; there are just too many players in the game. ^47474747With agriculture, the opportunities are really for small-time farmers outside the US, and I don't see there being that much premium involved. ⁴⁸

Business continuity is interesting, especially supply chain management and disruption. ⁴⁹That's one of the idea areas I came up with. ⁵⁰Cybersecurity is difficult because you need to be integrated into a company's systems to run parametrics, which seems hard to do. ⁵¹Energy production insurance for clean energy like solar or wind farms is another area. ^52525252But it has issues with risk aggregation since these farms are often in concentrated areas, and it's also quite competitive. ^53535353

Of the four ideas, the two best were event cancellation and supply chain disruption. ⁵⁴

Idea 1: Event Cancellation Insurance

Dalton Anderson: Event cancellation is a $1.6 billion market and has a 6% calculated annual growth rate up to 2032. ⁵⁵This is interesting because you could target weddings—there are two million weddings a year. ⁵⁶The average cost is $30,000, so people probably want protection. ^57575757If just 10% of weddings per year wanted event cancellation insurance at $500, that's $103 million. ⁵⁸And that's not even counting concerts and festivals, which could also pick up serious premium. ⁵⁹To my knowledge, there are event cancellation policies offered, but they're not using smart contracts, they're not parametric, and the limits are not very good. ⁶⁰I think there is something there that could be attacked. ⁶¹

Idea 2: Supply Chain Disruption Insurance

Dalton Anderson: Supply chain disruption is apparently an $18 billion market with a 6.6% annual growth rate. ⁶²

An absurd amount of shipments are delayed, like 60%. It's 56.3%, so pretty close to 60% of ships are delayed from the port of origin to the port of entry. ⁶³

Until recently, there wasn't any coverage for the loss of production or revenue for a business due to a shipping delay. ^64646464I looked at a couple of competitors, and it seems the max coverage offered is around $250,000. ⁶⁵But the average value for a single shipment container is $1.1 million. ⁶⁶So they're covering about 10% of the actual risk of the container. ⁶⁷

They are using parametric insurance, but not smart contracts or blockchain. ⁶⁸Their payments are a manual process taking two to seven days. ⁶⁹There's no reason why that couldn't be a close-to-instant payment. ⁷⁰Literally, all of the ships and containers are tracked in real-time. ⁷¹I was looking at a free dashboard that was tracking 250,000 ships all at once. ⁷²There is no feasible reason why you couldn't have this. ⁷³

Comparing the Two Top Ideas

Dalton Anderson: Those are the two ideas: event cancellation and maritime shipment delays. ⁷⁴They sound interesting to me. ⁷⁵I find large industrial projects interesting, so I would really dig the maritime shipping idea. ⁷⁶The main focus is on these two, and I'll have to select one sooner than later. ⁷⁷These are the two promising ones where I could leverage blockchain and smart contracts. ⁷⁸

I think the easier one would be event cancellation. ⁷⁹But my fear is that if the barrier to entry is low, then other people will just come in and do the same thing. ⁸⁰If the entry is a technical feat, then fewer people will follow. ⁸¹The maritime shipping delays idea is pretty cool. ⁸²Helping optimize the world sounds sick. ⁸³

Choosing the Right Blockchain: Solana vs. Avalanche

Dalton Anderson: I was intrigued by two big frameworks: Solana and Avalanche. ⁸⁴Solana was built from the ground up, designed to be a high-frequency transactional coin. ^85858585The coin is inflationary, with new coins released to stabilize the price and keep it low, encouraging use. ^86868686It uses Proof of History and Proof of Stake to verify transactions very quickly. ⁸⁷A demo by Fire Dancer showed 880,000 transactions a second. ⁸⁸For comparison, Visa has a throughput of around 40,000 transactions a second. ⁸⁹

Avalanche is also really cool. ⁹⁰It has a lower throughput of around 4,400 transactions a second. ⁹¹It's a fork of Ethereum, which means it's an improved version, but it still has some of Ethereum's issues. ⁹²The main difference is that Avalanche is deflationary; it has a limited supply of 720 million coins, and coins are burned during transactions. ⁹³One group, Solana, is trying to be one of the best high-throughput transactional protocols in the world. ⁹⁴The other, Avalanche, is pitching a value proposition. ⁹⁵For transacting with low fees and long-term stability, I think Solana is better because they're not trying to make the coin more expensive. ⁹⁶

My selection is Solana at the moment. I think that's pretty firm. ⁹⁷

The Critical Role of Oracles like Chainlink

Dalton Anderson: There's one more called Chainlink, which I think is incredible. ⁹⁸After researching all these cryptos, I realized I have to use Chainlink if I want to do parametrics. ⁹⁹

Chainlink is the bridge between the blockchain and smart contracts and, I guess, the real-world activities. ¹⁰⁰

Whether it's weather data, government data, or any type of data source, Chainlink is what links the real-time updates of data to these blockchains. ¹⁰¹If you wanted to do parametrics, you could pull data from Chainlink into your smart contract on either Avalanche or Solana. ¹⁰²

Next Steps: Building an MVP and Finding a Co-Founder

Dalton Anderson: So, I've vetted an idea space and found a couple of good ideas. ¹⁰³The next step is to find out all the competitors and research the legality of each idea to see if there are regulations preventing me from doing this. ¹⁰⁴And I need to keep pursuing a co-founder. ¹⁰⁵While I'm doing all that, I'll start building. ¹⁰⁶

I think I'll build in Go. ¹⁰⁷ Go is very strict. In another programming language, you might have 12 ways to do something; in Go, there might be two. ¹⁰⁸It's built for massive companies like Google, its creator, to prevent engineers from going off the rails. ¹⁰⁹

I would describe Go as the brutalism of programming languages. ¹¹⁰

Once I get a fully fleshed-out idea, I'll probably shoot my shot and apply to some incubators. ¹¹¹I'd love to find a co-founder; that's on my list. ¹¹² Wherever you are in this world, good afternoon, good morning, good evening. I hope that you enjoyed listening to today's episode. ¹¹³

RESOURCES MENTIONED

• Y Combinator's Startup School (SUS Learnings)
• Marsh Insurance
• shiptracker.org (or similar ship tracking dashboard)
• Mega Projects (YouTube Channel)
• Solana
• Avalanche
• Ethereum
• Chainlink
• Go (Programming Language)

INDEX OF CONCEPTS

Dalton Anderson, SUS Learnings, Startup School, Y Combinator, parametric insurance, traditional insurance, smart contracts, blockchain, California, Africa, Florida, Marsh Insurance, supply chain disruption, cybersecurity, energy production, event cancellation, weddings, concerts, maritime shipping, Mega Projects, Solana, Avalanche, Ethereum, Bitcoin, proof of work, proof of stake, proof of history, Fire Dancer, Visa, gas fees, Chainlink, Rust, Go, Google