A computer program inscribed on a blockchain whose conditional logic automatically executes payments or transfers as soon as a predefined condition is met, without human intervention.
A smart contract is a program whose code is immutably recorded on a blockchain and which executes automatically when the conditions it contains are met. Unlike a traditional contract that requires human interpretation and an execution process, the smart contract faithfully executes its if-then logic, if condition A is verified then payment B is executed, without any possibility of discretionary intervention or delay. This architecture gives transactions a transparency, traceability and tamper-proof quality that makes execution disputes virtually impossible. In parametric insurance, smart contracts constitute a natural automation tool, as they can receive data from an oracle, evaluate whether the trigger threshold is reached and instantly transfer funds to the beneficiary. The Ethereum platform is the most widely used for this type of decentralized insurance application. The limitation of the smart contract is that it executes without discernment: a design error in the contract conditions or erroneous data provided by the oracle will be executed with the same rigor as a correct instruction. Furthermore, the blockchain does not guarantee the legality of the contract under the insurance law applicable in the policyholder's jurisdiction, and regulatory uncertainty remains a major obstacle to large-scale adoption.
The Arbol platform offers weather insurance smart contracts for farmers in Kenya. A maize producer underwrites a contract indexed on the rainfall accumulated measured by the NASA POWER station within a 10 km radius of his holding. If this accumulation falls below 200 mm over the growing period from March to June, a payment of 500 dollars is automatically executed to his mobile money wallet within twenty-four hours. The farmer has no claim to file, as the Chainlink oracle feeds the Ethereum smart contract at regular intervals. The speed and simplicity of the mechanism have made it possible to reach smallholders inaccessible to classical indemnity insurance.
smart contract, contrat auto-exécutant, self-executing contract, contrat blockchain