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Implementation of blockchain technology in

insurance contracts against natural hazards:
a methodological multi-disciplinary approach
Andrea Jonathan Pagano1*, Francesco Romagnoli1, Emanuele Vannucci2
1 Institute
of Energy Systems and Environment, Riga Technical University, Azenes street 12/1, LV-1048,
Latvia
2 Department of Business and Management, Pisa University, Cosimo Ridolfi street 10, 56124, Pisa, Italy

Abstract – The scientific community is increasingly interested in implementing blockchain technology to

overcome problems linked to the contractual dimension. In the context of smart contracts, drafted using
blockchain technology, numerous categories have emerged, but each of them derives from the same concept,
that is, based on corresponding services, the consensus is defined on the basis of future events, but defined
ab origine. It is worth highlighting that, among the others, a gap still remains today, such that there is no
contract which, modifying itself on the basis of the data entered automatically on the platform, changes the
initial conditions that determined the will of parties and, likewise, in the subset of smart contracts there is no
type of insurance against natural hazard.
Through a study that involved four distinct areas, namely law, environmental engineering, insurance and IT,
this paper outlines a specific multidisciplinary methodology for attempts to achieve the drafting and
implementation of a digital insurance contract on a blockchain platform against natural hazards.

Keywords – INSURANCE, Blockchain, Natural hazard, Risk reduction, Smart contract,

Risk Mitigation.

1. INTRODUCTION

The insurance dynamics against natural disasters, have been involving for several years [1] the
theoretical and practical aspects including several fields of expertise in a multifaceted interaction
moving towards classical risk assessment perspectives from the environmental engineering and
insurances dimension, as well as from the adaption and mitigation strategies in the administrative
area of municipalities to the contract determination.
The proposed methodological approach involves clearly four distinct scientific areas, however
interconnected inextricably specifically: engineering, insurance-actuarial, legal and IT areas.
In this direction there is a need to create an innovative multidisciplinary platform towards an
optimize interaction of the regulatory, insurance and engineering dimensions in order to move
towards the development of a tool capable to implement the potential data processing of different
types of information: the use of the blockchain technology within risk reduction strategy to natural
hazards can support this transition.
Within this paper the possible benefits that the implementation of blockchain technology in an
insurance perspective of assets at risk could have is proposed.
The methodological perspective that the authors have chosen is relevant for reducing the risk under
several point of views. In particular, in the first place, it allows an analytical study of the
immovable asset insured and, for this reason, the above determinations involve a greater
knowledge of the area involved and a lower risk of unexpected disaster. Secondly, as better
explained below, the final insurance agreement allows an investment of a variable amount to be
allocated exclusively in risk mitigation works

* Corresponding author.
E-mail address: [email protected]
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The methodology used by the authors can be outlined in the following steps. The first one has
been addressed to the legal sphere, specifically a literature review on the state of the art of smart
contracts, with particular reference to those related to insurance dynamics has been carried out.[2]
Further an emphasis has been dedicated to the normative aspects of the bank loan contract, in
particular on the forecast of the variation (in peius) of the rate in order to outline an analogical
relationship between the digital insurance contract and the loan ex se.
The last part related to the legal sphere concerns the theoretical elaboration of a possible multi-
year contract, which can be modified automatically using blockchain technology, without the
necessary variation of the parties involved in the consent.
In fact, for the implementation of the aforementioned tool, it is not possible to disregard the
processing of data of time series of a municipality concerning the characteristics of a specific
hazards and other factors connected to them. The motivation that led the authors to think of a
municipality as a research and data processing structure is twofold. first of all, from an extremely
pragmatic point of view, several municipalities have established an excellent collaboration for
sharing knowledge with universities. in particular the RTU is in contact with some Latvian
municipalities. second, the municipalities relate to the greater number of natural disasters that can
occur, such as floods and earthquakes. the study on the territory of data elaborated in co-
supervision with the municipalities allows a greater precision and a more realistic elaboration,
based on real data. furthermore, the contract itself inherently conforms to an insurance of
immovable assets that does not adapt to the stipulation of a private individual, but more likely to
a public entity
The overall of the first step of the proposed methodological approach will be oriented towards
the creation of an inventory of the local hazard, the assessment of their occurrence and overall
potential impact on the asset at risk based on patrimonial and non-material damages.[3] Finally as
well the definition of potential specific mitigation strategies applicable in local context should be
mapped and included within an overall inventory. Within this process the assessment of the
potential benefits of mitigation strategies addressed to the infrastructural dimension should be
carefully explored.
After the actuarial dimensions is coming over towards the pathway of moving towards the creation
of insurance premium to specific or combined natural disaster risks,[4] it is advisable that the
scientific multidisciplinary approach, now fundamental for innovative technological
implementations, pays attention to a new possible contractual implementation in the insurance
field.[5]
Specifically at this stage the proposed approach proposed a Bayesian plan in which, following the
observation of a natural phenomenon, such as rainfall, first of all an expected value of the
phenomenon on the basis of the historical series described above in the methodological
engineering part.
As regards the last methodological part, specifically on IT, the authors, stating that for logical
consequence they preferred to focus on the areas mentioned above, the IT sphere was addressed
through a specific method, albeit hinted, on the study of the various blockchain platforms and on
the empirical evidence of a stipulation of a smart contract.

2. RESEARCH METHODOLOGY

A systematic mapping method was applied in order to focus on papers, regulations and documents
related to smart contracts and insurance dynamics against natural hazards. in order to provide a
map of scientific articles and regulatory provisions would help us further answer the research
questions.
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The starting point that is also the focus and the research gap is the following: the state of the art
does not present any type of multi-period smart insurance contract against natural hazards
implemented with blockchain technology

2.1 Definition of research questions

The overall output of our paper is to highlight the implementing lack that relate to the application
of smart contracts to insurance dynamics against natural hazard and its possible corresponding
solution.
The research questions are listed as below.
• What is a smart insurance contract?
• What are the experiences of implementing the blockchain technology in the insurance
sector?
• What would be the difference of a standard smart insurance contract, therefore with
instant effect, compared to a multi-period contract?
• Is there a regulatory substrate capable of "accepting" a smart multi-period insurance
contract? Possible multi-phase contracts with constant data flows. Analysis of the
individual characteristics of the new contract
• Is it possible to find any contractual declination able to implement the multi-period smart
contract?
• What structure could a smart multi-period contract have against natural hazards risk
mitigation?
• What other aspects could it involve? Bayesian-quantitative and engineering profiles

3. AN OVERVIEW OF THE METHODOLOGY IN ORDER TO THE IMPLEMENTATION FOR MULTI-

PERIOD SMART CONTRACTS

3.1 What is a smart contract?

To highlight the scientific and applicative gap of a specific smart contract insurance against natural
hazard, the first methodological approach, specifically legal, leads to a literature review of the
state of the art of the thematic areas of implementation of smart contracts themselves.
"Smart contracts" are the development of the research carried out by Nick Szabo, who in the
nineties was a reference author in the data encryption landscape. In 1997 he published two
papers[6] in which he theorized a system of transfer of rights in execution of a mathematical
algorithm, inspired by the sales system of vending machines.[7] The following year he released
the third paper in which he formalized the concepts outlined in previous works.
In his scheme a specific property right is included in a title intended to circulate, together with
related information.
The transfer is put into mathematical-cryptographic security and the ownership title is placed in a
logical chain of previous similar securities as a guarantee of the continuity of operations.[8]
The most important implementation of crypto-currency is the Bitcoin that is implemented in
different protocol like Ethereum and its cryptocurrency Ether (second to bitcoin by capitalization
and by currency/dollars exchange)(entire ecosystem of existing crypto-currencies on http://coinmarketcap.com)
This platform allows the use of the so-called Smart Contracts. [9]
Thanks to the invention of the Blockchain, in 2014, the twenty year old Vitalik Buterin, outlined
the characteristics of what then became the main platform for the development and performance
of smart contracts: Ethereum. The purpose of this platform is to provide a Blockchain a tech-tool
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with a built-in programming language, which can be used to build "contracts" and to encode
functions, so that these contracts are self-executed in accordance with the pre-set rules: all this
simply by writing the logic of their operation in a few lines of code. [10]
There is no universally accepted definition of Smart Contract, due to its recent appearance on the
scene and its technological complexity.
A simple definition is that of an agreement whose performance is automatic, so an algorithm for
computer transactions, which comply with the terms of the contract, [11] although perhaps a more
correct definition, even thinking about the applicative scope of the paper was provided by the
Italian IVASS (Italian Institute for Insurance Supervision), according to which smart contracts are
contracts written in a language that can be executed by a computer, whose clauses can produce
actions without external intervention based on information received in input and processed
according to predefined rules.[12]
In accordance with the fact that the characteristics of any good or data can be digitized and
represented by a code, all this can be stored and secured in a distributed register, not only from a
static but also a dynamic point of view; the operations and the agreements between the nodes of
the network can be traced and their execution can be automatically performed by the Blockchain
itself without the intervention of intermediaries. All this has become possible thanks to the Smart
Contracts which, as IT protocols, formalize the elements of an agreement and automatically
execute the terms of the agreement (terms that are therefore predefined) when the conditions
foreseen by the agreement are fulfilled (even the conditions are therefore predefined and codified).
In a nutshell, to provide a significative statement in order to understand the operation of smart
contracts “ a smart contract is a piece of code which is stored on an Blockchain, triggered by
Blockchain transactions, and which reads and writes data in that Blockchain’s database” [13]
The development and evolution of Smart Contracts have been sudden, their application is
expanding day by day. In addition to Ethereum, other open source projects were born to create
increasingly sophisticated Smart Contracts (like Counterparty and Mastercoin). To date, they have
been created to automatically execute derivatives, futures, swaps and options. They have also been
used to build platforms for the sale of goods on the internet, among unknown people, without the
help of central authorities.[14]

3.2 What is a smart insurance contract? What are the experiences of implementing the
blockchain technology in the insurance sector?
In the insurance sector, forms of insurance have developed that use Smart Contracts. The first
example is InsureETH, an UK startup, in the field of airline reimbursements/compensations.
Another case is that of the pilot project of the American International Group (AIG) together with
IBM and Chartered Bank who worked together for a multinational insurance coverage, preparing
a Blockchain insurance Smart Contract. It is worth adding that recently AXA insurance[15], in
order to refunds following delay or cancellation of the flight, has developed an extremely
interesting smart contract. The insurance called Fizzy, appears revolutionary because, as described
in the AXA portal, it excludes any kind of negligence, typical instead of the traditional insurance
dynamics. The smart insurance, regardless of any external event or subjective / objective liability,
automatically compensates in case of flight delay.[14] Thanks to the innovative combination of
parametric insurance and blockchain technology, which ensure the inviolability of data and
contracts and get a preview of the amount of compensation. An "ad hoc" protection that could not
be simpler and more accessible: if the flight is more than two hours late, the customer is
immediately and automatically compensated. AXA representative Jean-Baptiste Mounier, talking
about the essence of the smart contract, pointed out” “The smart contract is the party that decides
whether or not we should indemnify the policy holder and triggers a payment request to our
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system. The use of a smart contract to trigger claims will add trust in the insurer / policy holder
relationship.”[15]
Therefore, the first two research questions on the implementation of the smart contract in the
insurance sector provide some reflections. First, it is correct to highlight a propensity of the
insurance world for technological experimentation, and, likewise, the contractual determination
of AXA-Fizzy on the voluntary exclusion of any objective and subjective element in relation to
the payment of compensation seems extremely interesting. secondly, and this is the fundamental
element, the key factor of the research, is that the implementation of the blockchain technology in
the insurance field is still firm and static to the consent mechanism element determined future
even if uncertain. The gap therefore consists in the absence of a smart insurance contract capable
and able to modify elements and parameters that are inherent to the accidens, to the probabilities,
and therefore to the subjective element of the contract and its causa contrahendi,[16] and at the
same time without changing the consent of the parties.
And therefore, summarizing the two research questions, it is possible to determine that, firstly, the
smart contracts have had a rapid development and evolution, and secondly, in the insurance sector,
the blockchain technology is used and relegated to the automation of the mechanism of
compensation. This huge implementation gap leaves the way for the use of blockchain data storage
technology and modification of the contractual structure. In practice, it's time to move from a
purely refund insurance blockchain to a big data management one.[18]

3.3 What would be the difference of a standard smart insurance contract, therefore with
instant effect, compared to a multi-period contract?
In order to the title section, what would be the difference of a standard smart insurance contract,
therefore with instant effect, compared to a multi-period contract? One of the main differences
was highlighted at the end of the section just ended. And it is quite clear that the main difference
is about multiperiod. And, in this case it is appropriate to clarify this aspect, because multiperiod
is not necessarily synonymous with a long term as the smart standard contract is not synonymous
with short term.
The desired multiperiod implementation within the smart insurance contract is subject to the fact
that, periodically, through the storage of data from external certified sources, using the blockchain
technology, the contractual structure can change, such as the insurance premium, the sum of
compensation or the determination of the percentage of risk.[2]
and therefore, even if in a perspective about natural disasters, the scanned periods may be related
to prolonged periods, the determination of multi-mode concerns the scanning of temporal phases
in which it is possible to change and modify essential elements of the contract without the latter
termination or requiring a new agreement between the parties.
The second difference concerns the method of using the blockchain technology. Picking up one
of the smart contracts mentioned above in the insurance field, the blockchain is simply used in
two steps: 1) validation of the insured event, such as the hours of flight delay, and 2) the payment
of the sum of money.
In other words, in the very few applicative experiences that took place in the last few years,
insurances first of all made use of blockchain technology as an instrument to verify the insured
event. The information, using as an example the AXA contract, deriving from the airline are stored
within the blockchain data flow and any event of delay beyond the allowed limit "unblocks" and
acts as a check and authorization for the second step.
The one-dimensional perspective of the contract in relation to the uniqueness of the period,
understood as a contractual phase, emerges clearly. The data entered and the "transformation" of
these through blockchain technology into legal effects, such as compensation, are contained in a
single phase, without any possibility, that extends or changes the contractual structure. Therefore,
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in a one-dimensional perspective, the will of the parties, the economic agreements, regardless of
information, external events, blockchain technology acts exclusively as a verifying agent of the
insured event, relegated to a kind, using a parallel with civil law, of contract for future effects.
[19]
On the other hand, the contract that, hopefully, should be implemented, involves a completely
different dimension, that of periodic data scanning, aimed not at the termination of the contract,
but at its evolution, change and adaptation.
In the perspective of a multi-phase contract, the relevant data, in accordance with the insurance
dynamics against natural hazards, for example, rainfall, the height of the rivers, the damage
previously incurred, not only serve to create a network of useful information to counteract the
harmful phenomenon of risk, but also serves to store information using blockchain technology.
The implementation, in addition to the aforementioned characteristics of a smart insurance
standard contract, involves the perpetuation of the contract, step by step, following the flow of
data and the physiological modification of the initial parameters to which the parties have
expressed their consensus.

3.4 Is there a regulatory substrate capable of "accepting" a smart multi-period insurance

contract? Possible multi-phase contracts with constant data flows. Analysis of the
individual characteristics of the new contract
The minimal and necessary features of a multi- phase contract are described as following:
- Onerous, and therefore, taking up the standard scheme of an insurance contract, the
agreement is based on the bilateral provision by which the insured party pays, at agreed
intervals, a sum called insurance premium, to the company, which, in the case which the
event occurs compensates the damaged party.[17]
- Aleatory, in the sense that the insured event, even if determined, described and outlined,
is uncertain in its occurrence. [20]
- IT, in the sense that the stipulation of the contract occurs through an online platform
through blockchain technology. In particular, the methods of signature are constituted by
the expression of consent through the use of a digital signature device.
- Blockchain Technology
- Real time data flow, in the sense of an IT contract structure able to receive data and
information related to the insured asset and related environment able to modify time by
time the initial parameters set out in the stipulation of the contract.[21]
- Automatic renegotiation, automatic consensus, in the sense that the contract, considering
the flow of data, capable of physiologically modifying the initial parameters of the
contract, is legitimated, in relation to the flow, to change economic conditions even when
the new conditions result " in peius" for the so-called weak party, the insured subject.[22]
An analysis of the contracts disseminated with the individual characteristics mentioned above can
be carried out by determining some cases that are widespread within the Italian regulatory system.
As far as the cost of the contract is concerned, this is meant as the one in which a subject receives
an advantage in exchange for a non-gratuitous disbursement, defined as performance. There is a
close relationship between advantage and performance, a causal link. A typical example in the
Italian civil code panorama is represented by the sale, regardless of whether it concerns movable
or immovable assets, in which a subject pays a sum to another party and the latter, as a counter-
claim, sells the asset de quo.[19]
The dynamics inherent in the concept of "aleatory", on the other hand, pertains to the uncertainty
of the occurrence of a determined event. Remaining in the specific theme of research and paper,
clearly the insurance contract is the perfect example.
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IT technology is inherent in the numerous chaos of digital contracts. in particular, a digital contract
is an agreement entered into on an online platform through which legal effects desired by both
parties emerge. one of the best known digital contracts is certainly the one related to e-commerce
platforms, through which the buyer, in exchange for a payment, in most cases by credit card or
similar means, purchases one or more assets on a website, which can act as a vendor tout court
(Nike store, Ticketone) or as a mere intermediary (Amazon, Ebay).
The technical definition of blockchain is "decentralized ledger and cryptographically secure
transaction".[23] More generally, it is a technology that makes it possible to exchange not only
information on the internet, but, for the first time, properties as well. Not therefore the simple
payment or exchange of goods and services, but, thanks to this innovation, any other form of
collaboration between men can take advantage of the possibilities offered by the network. So when
we talk about blockchain, we refer to a international safe register, shared by all the subjects acting
within a specific computer network, based on peer-to-peer technology. The chain has the
peculiarity of recording and archiving all the transactions that are carried out within that network,
not requiring the presence of third parties, so-called trusted. The name blockchain originates from
the nature of the structure: each node of the network has a specific function in ascertaining the
information entered, which is transmitted to the next node in a chain formed by blocks, the
blockchain indeed. All transactions carried out to date and verified directly by the system are
recorded in it. In fact, transactions are only possible if they are approved by 50% + 1 of the
nodes.[24]
The European association of credit institutions has, in one of its reports, expressed a positive
opinion about the reliability of the system. The main characteristic of the whole architecture
computer science can be synthesized with a single term: decentralization. In fact, there is no
central repository in the blockchain but a peer-to-peer between users, by entering transactions in
blocks. [25]
In a standard blockchain architecture, transactions are created from active components inserted in
the network: the active user is called node and transfers Bitcoin to another node inserted in the
network. The blocks of the network are created, in a chain, by other participants in the architecture
that are defined miners. Miners to create blocks must solve complex algorithms and, if they
succeed, they are rewarded with some Bitcoins. The newly created transaction is distributed and
validated following a rigid one verification protocol to avoid, among others, the problem of
"double spending problem". In practice, the validity of one transaction is confirmed with the
consent of the nodes of the network on the basis of parameters set for the operation of the network
itself. The nodes that validate they are rewarded with Bitcoins. When the validity of the transaction
is verified, the miners put it in a block and the transaction is executed (performed) in full respect
of privacy. [10]
The flow of data, in the sense of the mere consecution of information entered in an IT platform,
can be understood thinking of what is set out above regarding the smart insurance contract on air
delay. the peculiarity of this contract is the discrepancy between the initial condition, and therefore
the uncertainty inherent in the event, and the event itself. In practice, following the random logic
of the insurance contract, the peculiarity consists in the input of data in real time and the
consequent immediate simultaneous supply of the sum established in favour of the insured subject.
The change of facts, the occurrence itself, modifying the conditions and using IT produces legal
effects.[11]
In the determination of a new possible contract the flow of data, albeit with different purpose, that
is exclusively that relating to the change of the editorial, risk and insurance premium parameters,
and therefore excluding the provision of any sum, it would have exactly the same functioning.
The last single feature inherent to the possible implementation of the contract de quo, concerns
the forecast and contextual acceptance of the parties, of the modification in fieri of the economic
conditions.
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This profile is closely linked to the data flow above. In particular, a data entry could be envisaged
as per the insured asset, as well as the surrounding environment, capable of modifying the
economic conditions, and therefore the insurance premium.[26]
A contract to refer to and to use as a potential analogy tool certainly concerns the so-called variable
interest rate mortgage.
A variable rate mortgage is a type of mortgage whose interest rates vary based on the performance
of certain parameters indicated in the contract.
The reference parameters to which the interest rates are linked are usually the Euribor (EURo Inter
Bank Offered Rate, ie the average interest rate of the financial transactions in Euro between the
main European banks) the IRS (Interest Rate Swap) - EuroIRS or the Official ECB Reference
Rate. The Euribor (Euro Interbank Offered Rate) is the interest rate used as an indexing parameter
for variable-rate mortgage loans. The Euribor has replaced the national indexes since January 1,
1999.
It is calculated daily as a simple average of the quotations recorded by a group of banks
representing the European and world credit panorama selected by the European Banking
Federation.
The reference rate for variable-rate mortgages is published daily at 11 am by a group of banks
representing the European credit landscape. There are currently 20 institutions that contribute to
taking over the Euribor.[27]
Summarizing the main section, regardless of the will of the parties that have signed the contract,
the data coming from a third party, an external and independent entity, the economic
characteristics may undergo changes. and so, if the Euribor, with the flow of data, is capable of
modifying, inaudita altera parte, with the increase or decrease of the interest rate, the economic
conditions, imposing on the parties, as above, with a view to an insurance smart contract against
natural hazard, the flow of data entered into the digital blockchain platform is capable of
modifying the parameters, such as risk and insurance premium, regardless of the parties’ will.[28]

3.5 Is it possible to find any contractual declination able to implement the multi-period smart
contract? Are there any impediments to the implementation of the smart insurance
contract against natural hazards?
In this first methodological phase, the authors, by background and by connection with local
insurance companies, have focused attention on the study of the normative dimension within the
Italian panorama.
It is necessary to define the standard insurance contract within the Italian civil code which,
moreover, in substance does not differ absolutely from that of the other major European countries.
Article 1882 of the civil code states that the insurance is the contract with which the insurer,
following the payment of a fee, defined as a premium, is obliged to compensate the insured, within
the agreed limits, for the damage that the latter suffered from a claim, or to pay a sum or an annuity
upon the occurrence of an event related to human life.
Therefore, the first characteristic outlined, namely the fact that the contract is onerous, is
absolutely transferable to the new agreement as an essential element and inherent to the definition.
Regarding the “alea”, as a determining element of the insurance contract, the risk is attributable
to the abstract possibility that a damaging and detrimental event of a certain interest of the subject
occurs. It is easy to understand how it can remain in a "latent" shape, more properly potential or
materialize, when that possibility mentioned by abstract becomes real. It must therefore be
possible (albeit with a greater or lesser likelihood of verification that affects only the amount of
the premium), but objectively uncertain (i.e. caused by external causal factors and not by the
parties, unaware of the possibility of occurrence and when ), while, as mentioned, harmful and
detrimental to the protected interest must be the event. The state of objective and absolute
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uncertainty that characterizes its essential features with the probabilistic forecast of the fact,
human or natural, which is detrimental to the protected interest must already exist effectively at
the time of adherence to the policy, since its lack ab origine determines the invalidity ex tunc of
the contract due to absence of cause (art. 1895), while the termination of the contract results in the
termination of the relationship, again for lack of a causal justification. And, therefore, even this
single characteristic has no impediment to its inclusion in the new contract.
The next three characteristics, i.e. IT, the blockchain and the real time data flow, can be analysed
together. In particular, since these characteristics are extremely distant from the determinations
referred to in the 1942 civil code, it is possible to make a comparison in relation to the contractual
experiences that have occurred in recent years. as mentioned above, it is precisely the Axa
contract, to give an example, among the particular implementations of blockchain technology in
the insurance sector that provides the methodological answer. In fact, the AXA contract perfectly
encompasses the three characteristics de quibus.
Without going into details, already explained in the previous section, firstly the smart insurance
contract against flight delay, integrates IT consistency, being completely digital, able to be
stipulated, among others by using an app for smartphone.
Secondly, it uses blockchain technology, and by reconnecting to the third profile, it uses the
aforementioned technology to i) verify the flow of data, in particular the possible communication
of the delay or arrival on flight time ii) certify the information received iii) pay the agreed sum in
case of delay.
For the purposes of drafting the paper, it is worth highlighting that almost all the features, some
of which are inherent ex se, such as compensation and the "alea", others for subsequent
implementation, such as IT, the ow of data and blockchain, are adaptable to our contract
implementation project.
As regards the dynamics of the renewal of the consensus to change the initial parameters, it seems
appropriate to briefly outline a double scenario. Prima facie, the dynamics of the variable rate
inherent to the loans, by structure and contractual framework do not seem to coincide with the
insurance dynamics, and therefore, and this is the trait d'union with the section of engineering
mitigation risk,[29] it appears extremely prudent to operate a contract in which a high premium
insurance is envisaged, above the real initial risk. In particular, when the initial conditions change
in peius, the prize in any case continues to be suitable from the point of view of the insurance
company for the continuation of the activity, and when, with determined time scans, reconnecting
to the theme of the multiperiod, the risk conditions reduce the difference between the bonus paid
and the premium that, ideally, would have been corrected from a mathematical point of view,
could be used to create risk mitigation structures. [30]

3.6 What other aspects could this new insurance smart contract involve? Bayesian-
quantitative and engineering profiles
The closure of the aforementioned section and the simultaneous and relative apparent
impossibility of operating an analogue implementation between insurance and loans, determines
a mandatory and natural involvement of two distinct scientific areas. actuarial science, whose
application, prodromal to the implementation of the contract, consists of the draft of a Bayesian
model and engineering science to determine possible risk mitigation structures in relation to the
income of difference between insurance premium and actual risk borne.[31]
Considering the current instruments for an economic mitigation of cat-risks due to natural hazards,
traditional reinsurance, cat-bonds and resilience bonds, our Bayesian approach concern a similar
approach to the resilience bonds scheme one, that is not only a compensation coverage of eventual
damages, but also the chance of financing infrastructures for mitigating the risk. Our
methodological propose is based on the calculation of the insurance premium at issue date and at
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every updating time, based on information collected at each time in a classic bayesian adaptive
scheme, such that the premium level may automatically change time by time. Furthermore, at each
renewal scan time, part of the eventual surplus of the premium payed respect to the payments
occurred for damages shall be (automatically, settled in contractual conditions) used for financing
mitigative infrastructures. Blockchain technology has the role of certifying reliable new
information and also the state of mitigative infrastructures, which can vary according to the use of
the surplus as mentioned before.[32]

4. CONCLUSIONS AND RESULTS

Given the purely methodological nature of the paper, the results may also be outlined with the
conclusions enclosing both in this section.
First of all, the authors point out a first result, in the sense of highlighting an evident regulatory
gap within the insurance scenario, also outlining the numerous advantages that could derive from
an implementation using blockchain technology under a Bayesian quantitative method
Secondly, it is worth highlighting the existence, in Europe, and in particular in Italy, of a regulatory
substrate capable of "welcoming" the proposed smart contract, and the clear proof is the example
set out in the Fizzy Axa contract. There are no impediments to the implementation of the insurance
contractual framework through blockchain technology, also with real-time data flow.
Moreover, the aforementioned flow, due to the substantial and regulatory differences highlighted
between the insurance contract and the variable rate mortgage, an example of a contract capable
of changing the economic conditions unheard of, may serve to outline the time and time the risk
and the relative "correct" insurance premium, but the authors underline the current apparent
impossibility of operating an analogy in order to a possible insurance-mortgage structure.
and it is precisely from the apparent impossibility mentioned above that the engineering risk
mitigation profile originates. if, on the one hand, it does not seem possible to change the economic
conditions for the weak party “in peius”, there are no impediments for both parties to decide for
an insurance premium higher than the initial risk, establishing that, at each scan time period, the
any surplus between actual damage coverage and paid premium insurance is intended for the
implementation and construction of risk mitigation measures.

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The Authors

Andrea Jonathan Pagano Ph.D Student, Researcher, Riga Technical University

Author’s educational background and scientific degrees

- Master degree in Law from Pisa University in 2016. Bankruptcy law, Business law, Insurance law
- Grad school Master degree in Corporate Crisis from Siena University in 2016. Bankruptcy law

Work experience

- Researcher, Riga Technical University, 2018 –

- Lecturer, Riga Technical University, 2018 –
- Associate, Studio Commerciale Corsini, 2017 –
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- Associate, Studio Legale Dominici, 2018 – 2018

- Lecturer, Turiba University, 2017 – 2018
- Tutor, Pisa University, 2016 – 2017
- Trainee, Studio Legale Uccelli – Montano, Sergio Russo, 2016 – 2016
Foreclosure advisor, Istituto Vendite Giudiziarie s.r.l. at Tribunale di Pisa, Livorno e Grosseto, 2015 – 2016

Research interest (among others)

- Insurance Law
- Insolvency Law
- Business Law
- Corporate restructuring
- Securitization
- Risk and Resilience
- Internet of Things
- Smart Contracts

Author’s contact data

Address: Azenes Street 12, Riga Lv-1048 at Riga Technical University Faculty of Power and Electrical Engineering
Institute of Energy Systems and Environment
Email: [email protected]

Emanuele Vannucci, Researcher, Pisa University.

Author’s educational background and scientific degrees

- Master degree in Statistics, Florence University
- Ph.D. in Acturial Sciences, Roma “La Sapienza” University
- Member of Ordine Nazionale degli Attuari (Professional Association of Italian Actuaries)

Research interest (among others)

– Extremal events risk evaluation
– Bayesian inference
Author’s contact data
Address: Via C.Ridolfi, 56124 Pisa, Department of Economics and Management
Email: [email protected]

Dr. Francesco Romagnoli graduated at the Polytechnic of Turin as

Environmental Engineer at the Dept. of Georesources and Geotechnology
in the year 2001.
In the year 2012 he graduated at the Institute of Energy Systems and
Environment of the Riga Technical University, Latvia with the thesis:
“Model for sustainable bioenergy production and use”.
Since 2016 he holds the position of Associate Prof. at the Institute of
Energy Systems and Environment of the Riga Technical University
Environmental Engineering with a specialization in Cleaner Production
Processes including teaching, student’s supervision, research and project
management activities. The main research interests of Dr. Romagnoli are:
biogas (in specific, Biochemical Methane Potential tests, Substrate characterization and evaluation of
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its methane production potential, pre-treatment processes), use of alternative type of biomass for biogas
production (i.e. seaweeds and microalgae), LCA and System Dynamics modelling within techno-
feasibility and sustainability evaluations for bioenergy pathways, urban system resilience as capability
to recover after extreme stress conditions, with an emphasis on energy infrastructure systems.
As head of the Biosystem Laboratory the activity performed are more focused on: development and
optimization of anaerobic digestion processes at laboratory and pilot scale, upstream biomass pre-
treatments methods for the analysis of process parameters, evaluation of feasibility and identification
of bottlenecks for industrial applications, microalgae use as innovative type of biofilters as CO 2 sink
and nutrient recirculation.
Author’s contact data
Address: Institute of Energy Systems and Environment, Riga Technical University, Azenes street 12/1, LV-1048
Email: [email protected]