Aquila

Aquila is building the first parametric forest fire insurance product in BC, Canada integrating Chainlink oracles and Etherisc. Aquila is also looking to create other unique insurance products in Canada and around the world; vineyard, wind farm, flood, California/Alaska/global forest fire, canola fields, and more. The development roadmap is completed and ready to start, we are working on a custom risk modelling solution with rms, the captive/data providers are ready to go. The forest fire market, along with the other insurance markets within Canada & globally is valued in the multiple billions and growing rapidly year after year. The insurance industry is ripe for disruption for our optimized insurance processes that automate claim payouts thus expediting the payout speeds, allows cheaper policies by eliminating claim management, creates trustless cryptographic security contract execution guarantees contrasting the polar opposite incentives & motives of centralized insurance companies, & eradicates unclear, non-disclosed data and replaces it in a verifiable and transparent environment. Additionally structuring Aquila in a unique captive insurance model allows groups\entities sharing the same risks to divide the surplus risk pool capital in strategic tactical ways: growing the primary pool, policyholder dividends, investments, service providers & distribution channels.

What is parametric insurance? 

Parametric insurance is a new form of insurance product that offers pre-specified payouts based upon a data driven trigger event, such as environmental and extreme weather acts like forest fires, temperature, wind speeds, floods, etc.

What is Chainlink?

Chainlink is a decentralized oracle network that provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain. Chainlink Connects smart contracts to the outside world, in our use case we use it to retrieve external weather data. In order to use this service you pay a fee to oracles that provide access to different jobs that provide different api’s (pricing, weather, etc)

Traditional Insurance Inefficiencies

Insurance models -> traditionally insurers do X, now its Y. What is the X? -Why is insurance a candidate for decentralization? Referencing the Etherisc whitepaper “The multi-trillion dollar insurance industry is dominated by huge corporations, weighed down by heavy regulation and plagued by misalignments of company and consumer incentives. The insurance world has devolved into an inefficient, expensive and ultimately frustrating industry. When customers most need help, they can end up fighting in vain for reimbursement from companies whose profits too often depend on avoiding paying out.” Please reference the Etherisc whitepaper for more information surrounding this subject, to clarify; Etherisc is aiming to use blockchain technology to help make the purchase and sale of insurance more efficient. Aquila is aiming to integrate Chainlink oracles into parametric fire insurance contracts, specifically starting in British Columbia Canada.

Analysis Of Basic Insurance Paradigms

… referencing the Etherisc whitepaper The core elements of insurance are: Expected value of risk/pool, Capital costs for long tail risks, Transaction costs. The three elements described above; pooling or risk, risk transfer, and efficient administration are necessary. You can’t have insurance without each of them. Principles of insurance: The sum of all premiums is X, the whole damage can be paid out of the collected premiums, there is no need for every house owner to take on a loan. (Because premiums are collected at the beginning of the year, and all the houses “expected” to burn don’t all burn at the beginning of the year, but more or less are equally distributed over the year(s), there is a so called “float” of liquidity which can also generate a significant revenue. The three elements are completely independent of the underlying technology, economic environment or currencies. They are the atomic building blocks of every risk-sharing system. Insurance companies overhead consists of insurance policy underwriting, insurance policy administration, accounting, investments, actuarial, claims intake, claims administration, investigation and 3rd party services such as independent adjusters, investigators, restoration contractors, consultants, etc.

Calculating The Required Capital

The primary concern of any insurance model is to calculate the reserve capital required to guarantee solvency of the risk pool to some arbitrary and high confidence level, such as 99.99% In exceptional circumstances, an outsized number of policies are claimed and this can result in depleting and exceeding the collateral reserved in the risk pool. In this case, the claim liability is paid out to customers from the reinsurance pool, whose precise function is to service this long-tail risk. Since the actual collateralization of the risk pool is usually higher than the actual number of claims that must be paid, the risk pool has a positive probability expectation of revenue An insurance risk is a future liability for payment which occurs with a certain probability A simple algorithm for premium calculation is that the average payout for claims is covered by the net premiums collected a level of confidence of e.g. 99.9% means that in 99.9% of all distinct periods of time the probabilistic gross payout is smaller than the sum held in the risk pool.
Cont. 
The distribution of expected value (element 1) and capital costs for long-tail-risks among participants (element 2) is inevitable and not specific for a blockchain solution. Blockchain is essentially – among other aspects – a way to solve the transaction cost problem without firms. Because of this huge gain in efficiency, firms have many ways to hide profits in the transaction costs, and on the other side internal inefficiencies don’t show up fast. Transaction costs also appear in another context: regulations, which are deemed necessary to protect customers in a context with built in conflicts of interest. Regulations form a very effective “competitor” barrier to entry. While insurance companies often complain about the burdens of regulations, they actually don’t have much interest in reducing these burdens, as they discourage new competitors from entering the market.

Blockchain Solves Traditional Insurance Issues

Blockchain can help to solve four main problems which pile up costs in traditional insurance companies: 1. Coordination (“managerial”) costs. 2. Conflict of interest between customers and company. 3. Information asymmetry between customers and company. 4. Access to risk pools. Instead of a posse of managers, smart contracts can act as trustless hubs between the agents at the rim of the system, and thus eliminating most of the costs and the inefficiency of the management. Conflict of interest between customers and company: e.g The claims manager has the explicit goal of minimizing payouts for damages, because he is employee of the insurance provider! Of course there is a guild of “independent” appraisers and experts, but who pays their bills? Insurance companies gather data and information in huge private silos by proprietary means and the data is often not shared., This data and the companies’ experience in analyzing the data is considered one of the main differentiators in the market. In a blockchain environment, all fundamental data and the decisions based on the data can be transparent and objectively validated. The risk pools of traditional insurances are attractive investment vehicles, but currently, they are not open to the public, and the profits generated benefit only a small circle of investors. Blockchain can democratize the access to similar instruments, by tokenizing risks with “Risk Pool Tokens”

Risk Models

Risk Model Providers and Actuaries: Risk models are fundamental for any insurance product. The correctness of the model is precondition for the economic success of the product Generally, because of the magnitude of value affected by errors and deviations in the model, a Risk Model Provider won’t take responsibility for the economic outcome of his model, but rather for his adherence to principles and established guidelines in his trade. . a risk model should be built on a clear specification, and it should be validated by acknowledged testing methods before it is put into production. A risk model provider should therefore be rewarded according to such benchmarks

Team

Zach Stamegna (Canada) – Founder/CEO, early Chainlink investor/enthusiast, 2018 George Brown College Full Stack Development
Jesper Christensen (Denmark) met through Chainlink discord, who immediately recognized the vision for what Aquila was trying to build, and instantly demonstrated his deep understanding of Chainlink and IT infrastructure. Jesper has over a decade of experience working in technology. 
Hicham (Germany) is an extremely bright engineer, who is also passionate about web3. Hicham is very skilled in solidity development and we met during the Chainlink fall hackathon. 
Chuck (Paris), is working as a blockchain developer,  building a lending market for real estate token. Also met during hackathon, and has vast knowledge of Solidity/Web3. 
Cielito Villanueva: Insurance advisor, with 15 years experience as a broker, and connections within the insurance industry. 
Toby Height: Founder and CEO of blockconnections.io