Today Brooklyn-based Otonomi, the blockchain parametric insurance startup said it had signed a deal with Greenlight Innovation Syndicate 3456, a Lloyds underwriter to provide insurance cover. That was the final step it needed to launch. Otonomi provides automated cargo delay insurance starting with air cargo. Last year it raised $3.4 million in funding which included Greenlight Re Innovations as one of its backers.
The key with parametric insurance is to remove the need to process claims manually, radically reducing the cost of insurance and how long it takes to pay out claims. With Otonomi, that’s expected to fall from 45 days to 45 minutes. The primary piece of information needed to process a claim is the flight data that’s available automatically.
Otonomi’s is not the first flight delay insurance, but it has quite a different approach from previous attempts. For example in 2017 Axa launched fizzy, which used the public Ethereum blockchain to offer automated payouts to consumer travelers for flight delays. But the travel and airline industry wasn’t that interested, and it didn’t get traction.
In contrast, Otonomi’s offering is targeted at the supply chain sector. If a shipment of vaccines is delayed by 12 hours, the spoilage is significant. Rather than dealing with individual companies sending packages, Otonomi is targeting freight forwarders and there are 118,000 of them in the United States.
What’s relatively unusual about Otonomi as a blockchain insurance company, is it’s not trying to cut out the middleman. Instead, it’s selling its insurance coverage via brokers such as RLI in the United States. Otonomi’s CEO told us last year that the insurance offering is disruptive, but a disruptive distribution method was a step too far.
The challenge with parametric insurance is that people are always trying to game the system. Otonomi has a variety of risk management processes, including blackout periods. For example, you can’t get coverage at short notice if there’s a storm forecast for tomorrow in the area. The parcel delay coverage is priced using a combination of regionality, seasonality, weather patterns and departure and arrival points.
At a technical level, Otonomi has both public and permissioned blockchain solutions. Which one is used will depend on the region. The permissioned blockchain it is Ethereum-based using Kaleido’s offering. For the public blockchain version, it uses Ethereum side chain Polygon.
“At Otonomi, we are firming up our footprints in unchartered territories when it comes to providing a complete overhaul of the autonomous provision of insurance, in addressing the problems of an industry screaming for innovation,” said Yann Barbarroux, CEO of Otonomi. “It’s an amazing opportunity for the logistics customers as they are leveraging aggressive tech and predictive analytics to recoup vital capital and protect their liability risks.”
Update: removed reference to Otonomi being an MGA