The Danish Red Cross has launched a blockchain-based "catastrophe bond" for volcano-related disasters, according to an announcement from the insurance group Howden.
The bond, worth $3 million, aims to facilitate disaster relief to affected areas if 10 specified volcanoes erupt. The chosen volcanoes are in Cameroon, Chile, Colombia, Ecuador, Guatemala, Indonesia and Mexico.
Replexus, a UK-based firm that securitizes insurance risk, provided the blockchain application. "The volcano CAT bond will be placed on an insurance-linked securities (ILS) blockchain, making the transaction particularly cost-effective for the aid agency and enabling secondary market trading among ILS investors,” Replexus founder and CEO Cedric Edmonds said in a press statement.
Howden and risk modeling agency Mitiga Solutions also helped the Danish Red Cross create the bond.
The system uses a model that can "anticipate the trajectory of the volcanic ash cloud using prevailing winds," according to Mitiga CEO Alejandro Marti. If the model determines that ash is going to fall on toward vulnerable communities, the bond will automatically start a pay-out using Mitiga Solutions' trigger mechanism, according to the announcement.
Investors in the new bond include Switzerland-based Plenum Investments, UK-based investment manager Schroders and the Swiss insurance investment advisor Solidum Partners.