A new startup run by a former Citadel quant is trying to create a better way for farmers to protect their crops from climate change

  • Arbol Market is a young startup run by Sid Jha, a former quant for Ken Griffin's Citadel, that lets farmers and others impacted by climate change protect their profits. 
  • The firm considers itself an insure-tech firm — though it is in the process of becoming an insurer — because it uses smart contracts on a blockchain platform to connect those who need climate change insurance and pools of capital looking to diversify their holdings. 
  • So far, the platform has $250 million of risk capacity currently, with plans to break $1 billion early this year. 
  • "When we looked at this landscape, we saw users that could use this product and weren't being served," said Jha, who is a cofounder with his brother. 
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Blockchain. Machine learning. Alternative data. Climate change. 

It seems like Arbol Market, a new insure-tech platform, is hitting every buzzword, and the startup's quick growth is proving there's a market for its products. 

Arbol was founded by Sid Jha, a former quant at Ken Griffin's Citadel who brought a machine-learning approach to trading commodities, and his brother Osho Jha, the firm's chief data scientist who has worked at data shops like M Science and asset managers like BlackRock and J. Goldman & Co. The start-up began in 2019, after Sid and Osho left Citadel and J. Goldman & Co., respectively. 

The platform operates in a pretty straightforward way: It connects people and businesses, like farmers and cruise ship operators, most at risk of climate change hurting their bottom lines with investors like hedge funds and reinsurers willing to offer protection. Unlike most insurers here is no back-and-forth between the two parties, and Arbol never handles the money. Arbol is not technically an insurer yet, though it is in the process of becoming one so it can develop more products and expand to more jurisdictions.

See more: Billionaire Ken Griffin's Citadel has a sprawling alumni network of more than 80 hedge funds. Take a look at our exclusive list.

Instead, policies are triggered if certain weather events — say not enough rain falls in a season to grow a certain crop — occur. Arbol uses smart contracts, or self-executing contracts, on blockchain technology, which cut out the middleman and automatically pays out money to the insured once a specified event occurs. 

For Sid Jha, the utility of this platform is obvious, and solves a big problem.

Arbol Market cofounder Sid Jha, a former portfolio manager at CitadelArbol Market

"The way traditional insurance works is someone goes to your business or farm and accesses the damage and determines if your claim is legitimate," he said. "It's lengthy and often leads to disputes."

The firm's products, all based on certain weather events, prevent any back-and-forth, and "we do not control the escrow, the escrow is locked in a smart contract between the two parties."  

The platform is able to cater to smaller claims — they've had premiums as low as $500 — because it's not as resource-intensive, giving smaller farmers a chance to protect their investment. Agricultural insurance is usually given by the acre, and in 2019 premiums for just corn alone amounted to more than $3 billion. 

Research from the American Farm Bureau Federation shows that a majority of staple crops like corn, soybeans, and wheat are insured, but Sid Jha said insurers focus on the big agriculture conglomerates and small farms often go unprotected. 

"When we looked at this landscape, we saw users that could use this product and weren't being served."

The explosion of data, particularly alternative datasets on weather, made Arbol possible though. When Sid Jha was trading commodities, he put these datasets to work to determine what the price of corn or soybeans should trade at, using machine-learning techniques to predict future changes. 

Without this granular data – Jha says he is able to see rainfall data down to three-mile tracts — a platform like this would be near impossible to bring to life.

The firm wrapped up its Series A fundraising round at the end of last year to give it $7.5 million in funding, and hopes to have $1 billion in risk capacity on the platform early this year. At the end of 2020, it had surpassed $15 million in notional risk. 

The next step is getting in front of industries other than agriculture, where it already has tens of thousands of users. Travel companies are the immediate thought for possible expansion, though Jha said all companies that have supply chains impacted by climate chain could be a target, mentioning coffee sellers and energy companies. 

"We can hedge any kind of weather or non weather risk as long as there is a dataset with a long enough history."

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