Agricultural Economics and Development

Agricultural Economics and Development

Designing a Smart Contract for Agricultural Insurance on Blockchain

Document Type : Original Article

Authors
Nematollah Nemati 1
Foad Eshghi 2
Seyed Mojtaba Mojaverian 3
Tahereh Ranjbar Malekshah 4
1 Phd Student of Agricultural Economics, University of Agricultural Sciences and Natural Resources, Sari, Iran
2 assistant professor, Department of Agricultural Economics, University of Agricultural Sciences and Natural Resources, Sari, Iran
3 Professor, Department of Agricultural Economics, University of Agricultural Sciences and Natural Resources, Sari, Iran
4 Graduated in Agricultural Economics, University of Agricultural Sciences and Natural Resources, Sari, Iran
10.30490/aead.2025.367446.1673
Abstract
Introduction: Agriculture is widely recognized as a cornerstone of income and employment in many developing economies; however, farm households and agri-food supply chains are repeatedly exposed to different shocks such as droughts, floods, earthquakes, and other climate-related extremes that disrupt production calendars and threaten livelihoods. Conventional agricultural insurance has often been observed to underperform in such contexts because of high administrative costs, fragmented data flows, lengthy claims assessment processes, payment delays, and trust deficits among stakeholders. In response to these limitations, a technology pathway based on distributed ledgers and self-executing agreements has been investigated. By encoding policy terms and operational rules in smart contracts, adjudication can be automated, manual reconciliations can be reduced, and a tamper-evident audit trail can be created to enhance transparency and accountability. Accordingly, a prototype decentralized insurance mechanism for agricultural products was designed and implemented. The objective was defined as improving efficiency, lowering operational frictions and costs, and increasing trust through immutability and end-to-end visibility. To ensure alignment with beneficiary needs, user priorities were elicited and translated into technical specifications before implementation. The resulting system was structured around a modular set of smart contracts, a distributed execution environment, and a user interface designed for non-technical participants. The approach was intended to demonstrate that blockchain-based insurance can be operationalized in a practical, auditable, and scalable manner suited to the realities of agricultural risk.
Materials and Methods: The research was conducted in two coordinated tracks. In the requirements track, the preferences of intended users were elicited and quantified. In 2024, opinions from 30 farmers were collected regarding the desirable features of a blockchain-enabled insurance platform. The Analytic Hierarchy Process (AHP) was employed to structure the decision problem and derive weights. Pairwise comparisons were administered over a defined hierarchy of criteria and sub-criteria, an importance scale was applied, and consistency ratios were checked to validate response coherence. In the system design and prototyping track, the AHP-derived requirements were translated into an executable architecture. A suite of four smart contracts was specified and developed on an Ethereum-compatible blockchain: (i) a registration contract to onboard and manage roles (insurers, policyholders, and damage assessors) and to bind unique identifiers to addresses; (ii) an insurance policy contract to issue policies, store key parameters (coverage window, premium, payout logic, and insured product type), and emit events for state changes; (iii) a damage assessor contract to receive authenticated assessments and associate them with claims; and (iv) a payment contract to enforce rule-based disbursement once contractual conditions were met. The network substrate was provided by distributed servers organized in multi-node clusters so that validation, consensus, and storage were shared across nodes for resilience and auditability. A hybrid data strategy was adopted. Policy metadata, claim states, and event logs were anchored on-chain for immutability and traceability, while large or sensitive artifacts were stored off-chain with cryptographic hashes maintained on-chain to guarantee integrity. A web-based user interface was developed to expose core user journeys—registration and verification, policy discovery and purchase, claim initiation, assessment submission (for authorized assessors), and payout tracking—so that non-technical users could interact with the platform.
Results and Discussion: According to the AHP, 5 criteria were determined: "process improvement and promotion of agricultural insurance", "immutability of agricultural insurance data", "transparency of agricultural insurance", "emergency potential in agricultural insurance", and "traceability of agricultural insurance activities", and 23 sub-criteria. The results showed that the sub-criteria of "visibility of the type of insured products and specificity of the type of insurance", "visibility of transactions (activities) carried out between insurers, policyholders, experts and other stakeholders (based on the assigned code)" and "visibility of insurers, policyholders, experts and other stakeholders (based on the assigned code)" had the highest weight and importance with weights of 0.338, 0.334 and 0.327, respectively. Also, the proposed model in this study includes four contracts: registration smart contract, insurance policy smart contract, damage assessor smart contract, and payment smart contract. The blockchain network that underpins the proposed smart contract platform also includes an infrastructure built on distributed servers and multi-node clusters. In addition, a user interface (site) was created that allows users to engage with the blockchain network and smart contracts.
Conclusion and Suggestions: The existing system described in the study is a prototype for a decentralized insurance system. This solution eliminates third-party intervention through the use of blockchain technology. Smart contracts enable the automation of tasks, hence speeding up the entire insurance process. Trust is fostered in an environment devoid of trust. Furthermore, the versatile system architecture allows for seamless customization to accommodate various product index policies. Since the capabilities of smart contracts in the context of blockchain technology have been welcomed by the interviewed farmers, it is suggested that the necessary surveys be conducted to promote and develop smart contracts for agricultural product insurance, as well as design smart contracts with the ability to include the features of various products in different regions
Keywords
Contract Design
Decentralized
Peer-to-Peer
Agricultural Insurance
Analytic Hierarchy Process (AHP)

Subjects

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