Decentralized Parametric Earthquake Insurance Pre-Technical Implementation: EtherISC Smart Contracts Proposal (Hawaii)

Abstract

EQuake is a parametric earthquake insurance that offers a distinct approach to covering earthquake-related losses, focusing on predefined trigger events (like magnitude or ground shaking intensity) rather than actual damage assessment. EtherISC builds specifc Ethereum blockchain smart contracts for weather related decentralized parametric insurance. This earthquake insurance is for the islands of Hawaii, including the Big Island of Hawaii which is typically refused earthquake coverage due to the ongoing eruption of Kilauea, an active shield volcano located along the southeastern shore of Hawaii Island.

Introduction

Decentralized, parametric, earthquake insurance for Hawaii will be a first in the state. Notably, earthquake coverage for the Big Island of Hawaii is currently handled by only two traditional insurance agencies: Atlas, and Carr. Before discussing the technical aspects of Ethereum blockchain implementaton with EtherISC who would provide smart contracts, there are several critical considerations need to be addressed.

Methods

Defining the Trigger and Payout Mechanism
Data and Modeling
Legal and Regulatory Frameworks
Risk Assessment and Pricing
Market Validation
Aspects of competing with Traditional Insurance

Results

After addressing these pre-technical considerations, the developers of the EQuake platform were able to lay a solid foundation for the successful implementation of parametric earthquake insurance that utilizes EtherISC smart contracts to offer innovative solutions for managing seismic risk in the state of Hawaii.

Discussion

Foundational Elements

1. Market Validation

Etherisc: Have you validated that there's sufficient demand for earthquake insurance in your target region (e.g. Hawaii)

EQuake: There's a significant protection gap regarding earthquake insurance, especially in earthquake-prone regions like Hawaii. Specifically, regions on the Big Island of Hawaii with the active volcano Kilauea are denied earthquake coverage outright by traditional carriers. Currently, only two insurers offer earthquake coverage to high-risk zones in Hawaii. Parametric insurance is urgently needed to fill the gap.

• Low uptake: Despite being a high-risk state for earthquake damage, fewer than 12% of Hawaii homeowners and businesses carry earthquake insurance. This is notably low compared to the state's purchase of nearly $38 billion in general "disaster insurance" premiums over the past 20 years.

• Earthquake risk: Hawaii faces earthquake risks due to its formation by magma plumes and volcanic expansion.

• Demand Influences: Factors influencing earthquake insurance demand in Hawaii include proximity to active fault lines, seismic history, home age and construction materials, and the value of property.

• Rising Costs: Hawaii's insurance market, including potentially earthquake insurance, is facing challenges like rising costs and stricter guidelines, similar to other high-risk regions.

• Parametric Insurance Potential:

Parametric insurance, which does not require claims adjustors after a calamity, offers promise for quick recovery and is appealing for developing countries prone to natural hazards like earthquakes, tsunamis, and cyclones

Etherisc: What channels will you use to reach potential customers? Are you planning to partner with local distributors, agents, or NGOs?

EQuake: I would partner with local organizations and NGOs to reach potential customers.

Etherisc: Are there existing cultural or legal frameworks for mutual or parametric insurance in these regions?

EQuake: Yes, there are existing cultural and legal frameworks in place for both mutual and parametric insurance in Hawaii.

Hawaii:

• Mutual Benefit Societies: Hawaii has a legal framework for mutual benefit societies, outlined in Hawaii Revised Statutes (HRS) Chapter 432. These societies are organized for the primary benefit of their members and not for profit. While they may perform some functions of insurance companies, they are generally exempt from many of the laws applicable to insurance companies. They are subject to limited provisions of the Hawaii insurance code (HRS Chapter 431).

• Parametric Insurance: Parametric insurance is being used in Hawaii, for example, to provide financial solutions for the restoration of coral reefs after extreme weather events. This shows a developing framework for parametric insurance in the state, particularly in the context of climate adaptation.

2. Product Design

Etherisc: What distinguishes your product from traditional insurance offerings or similar blockchain-based solutions?

EQuake: Parametric earthquake insurance in Hawaii, compared to traditional insurance and blockchain-based solutions, exhibits several key distinctions

1. Based on Predefined Triggers:

• Parametric: Payouts are triggered by the occurrence of a predefined event, such as a specific earthquake magnitude or ground shaking intensity, regardless of the actual damage incurred.

• Traditional: Payouts are based on a detailed assessment of the actual damages sustained.

• Blockchain: While blockchain can be used to streamline parametric payouts, the core distinction lies in the reliance on objective data triggers, not the underlying technology itself.

2. Faster Payouts:

• Parametric: The streamlined claims process, based on readily available data, allows for much faster payouts (weeks, not months or years).

• Traditional: Claims assessment and payouts can take a significant amount of time due to the need for inspections and documentation.

• Blockchain: Blockchain technology can further accelerate parametric payouts through automated smart contracts that trigger payments upon verification of the predetermined conditions.

3. Coverage for Broader Consequences:

• Parametric: Parametric insurance can offer broader coverage, extending to expenses beyond physical damage, such as business interruption and temporary housing.

• Traditional: Traditional insurance typically focuses on covering the cost of physical damage to insured property.

4. Potential for Lower Administrative Costs:

• Parametric: The simpler claims process reduces administrative overhead, potentially leading to lower premiums.

• Traditional: Detailed loss assessment can lead to higher administrative costs.

• Blockchain: Blockchain integration can further reduce costs through automation and increased efficiency.

5. Increased Transparency and Trust:

• Parametric (especially with Blockchain): The reliance on objective data and immutable ledger technology can enhance transparency and trust in the system.

• Traditional: Traditional insurance processes can be opaque and lead to skepticism or distrust, particularly in underserved communities.

6. Flexible Use of Payouts:

• Parametric: Payouts are typically unrestricted, allowing the insured to allocate funds as needed for recovery efforts.

• Traditional: Funds are primarily used for repairing or replacing damaged property.

7. Addressing Underserved Markets:

• Parametric: Parametric insurance can offer coverage in regions where traditional insurance may be unavailable or unaffordable.

• Traditional: Traditional insurance may not be readily available or accessible in certain locations.

8. Potential for Basis Risk:

• Parametric: A key challenge is the potential for basis risk, a mismatch between the index-based payout and the actual loss incurred.

• Traditional: Indemnity-based approach more closely aligns payout with actual losses.

In summary, parametric earthquake insurance, particularly when combined with blockchain, offers a faster, more transparent, and potentially more accessible solution for earthquake risk in Hawaii. It focuses on predefined triggers and broader consequences, differentiating itself from the traditional indemnity-based approach of traditional insurance

Etherisc: What distinguishes your product from similar blockchain-based solutions?

EQuake: How this parametric insurance product differs from others is in how it provides earthquake insurance to an underserved population in the remotest islands in the pacific. This coverage will include not just the islands of the Hawaiian archipelago but also the island of Hawaii which had an active shield volcano, Kilauea, that has been erupting nearly continuously since 1983, a period of over 40 years. Specifically, the Pu'u'ō'ō eruption lasted from 1983 to 2018. Kilauea is also currently erupting in 2025. The presence of an active volcano, combined with a propensity for tsunamis makes Hawaii an often problematic geographical location to insure for earthquakes. EQuake decentralized, parametric insurance seeks to address this imbalance in the market.

In summary:

Parametric insurance focuses on the occurrence of a measurable event, while indemnity-based insurance focuses on the actual loss sustained.

While both serve different purposes in managing risk, parametric insurance is often used to complement traditional indemnity insurance by filling coverage gaps and providing faster payouts for specific events.

Etherisc: Is the product parametric (triggered by measurable events) or indemnity-based (triggered by claims)?

Equake: Triggered by measurable events - when an earthquake is detected the smart contract pays out the claim to the policyholders.

Etherisc: What data sources or oracles will you use to determine event occurrence (e.g., USGS for earthquakes)?

EQuake: To determine the occurrence of earthquakes in Hawaii I would rely on the following primary data sources and organizations:

Data Sources and Oracles for Earthquake Monitoring in Hawaii

• USGS Hawaiian Volcano Observatory (HVO): HVO is the authoritative source for monitoring and reporting earthquakes and volcanic activity in Hawaii. They operate a comprehensive seismic network as part of the USGS Advanced National Seismic System (ANSS).

• Hawaii Integrated Seismic Network (HISN): This network is a partnership between HVO and various organizations, including NOAA Pacific Tsunami Warning Center (PTWC), USGS National Strong-Motion Project (NSMP), Incorporated Research Institutions for Seismology (IRIS), and the Infrasound Laboratory at the University of Hawaii. Data streams from HISN and other sources are used by USGS to automatically generate and post information about earthquakes in Hawaii.

• Pacific Tsunami Warning Center (PTWC): PTWC plays a key role in tsunami warning for Hawaii and uses data from tide gauges to monitor water levels, which can be affected by earthquakes.

• Felt: This website offers detailed earthquake data specifically for GIS professionals focusing on regional seismic activities around Hawaii.

3. Risk Assessment & Pricing

Etherisc: What model will you use for pricing? Is it location-based, risk pool-based, historical damage-based?

A model for pricing parametric blockchain earthquake insurance in Hawaii would be location-based and to a lesser degree risk-pooling.

Here's why:

• Parametric insurance focuses on predefined triggers and payouts based on the occurrence of an event, rather than the extent of actual damage.

• Location plays a significant role in earthquake risk. Areas with higher seismic activity will have higher premiums.

Map Showing Lava-Flow Hazard Zones, Island of Hawaii

This map https://pubs.usgs.gov/mf/1992/2193/ shows lava-flow hazard zones for the five volcanoes on the Island of Hawaii. Volcano boundaries are shown as heavy, dark bands, reflecting the overlapping of lava flows from adjacent volcanoes along their common boundary. Hazard-zone boundaries are drawn as double lines because of the geologic uncertainty in their placement. Most boundaries are gradational, and the change In the degree of hazard can be found over a distance of a mile or more. The general principles used to place hazard-zone boundaries are discussed by Mullineaux and others (1987) and Heliker (1990). The differences between the boundaries presented here and in Heliker (1990) reflect new data used in the compilation of a geologic map for the Island of Hawaii (E.W. Wolfe and Jean Morris, unpub. data, 1989). The primary source of information for volcano boundaries and generalized ages of lava flows for all five volcanoes on the Island of Hawaii is the geologic map of Hawaii (E.W. Wolfe and Jean Morris, unpub. data, 1989). More detailed information is available for the three active volcanoes. For Hualalai, see Moore and others (1987) and Moore and Clague (1991); for Mauna Loa, see Lockwood and Lipman (1987); and for Kilauea, see Holcomb (1987) and Moore and Trusdell (1991).

This map is also used by traditional insurance to determine the propensity for earthquake risk and therefore calculate the premium price.

• While historical damage data is valuable for understanding risk, parametric insurance simplifies the claims process by focusing on the event trigger, making it less reliant on individual damage assessments compared to traditional indemnity insurance.

• Blockchain technology would likely be used to automate the payout process based on pre-defined triggers and reliable data sources, rather than impacting the core pricing methodology itself.

Therefore, a pricing model for parametric blockchain earthquake insurance in Hawaii would focus on:

• Location-specific seismic risk: This would involve analyzing data about earthquake frequency, intensity, and potential impact in different areas within Hawaii.

• Risk pooling: Premiums would be calculated based on the collective risk of all policyholders within a certain geographic region.

• Event triggers: The pricing would also consider the probability of the pre-defined earthquake parameters (e.g., magnitude, epicenter location) being met or exceeded.

• Payout amount: The agreed-upon payout amount would also be factored into the premium calculation.

Historical damage data might be used to inform the risk assessment and parameter setting, but it would not be the primary determinant of individual payouts.

Etherisc: Can your pricing be supported by historical loss data or actuarial models?

EQuake: Pricing models for parametric blockchain earthquake insurance in Hawaii would utilize a location-based and risk pool-based approach, supported by historical loss data and actuarial models.

Here's why:

• Location-based pricing: Parametric insurance relies on a predefined trigger, such as the magnitude of an earthquake or shaking intensity at a specific location. The closer the insured property is to areas with high seismic activity (like near fault lines), the higher the potential risk and, therefore, the premium.

• Risk pool-based pricing: Insurance pools, like the Caribbean Catastrophe Risk Insurance Facility (CCRIF), demonstrate the effectiveness of pooling risk from multiple locations to potentially lower premiums. This approach, applied to earthquake risk in Tonga and Hawaii, could similarly leverage geographical diversity to distribute risk among policyholders.

• Supported by historical loss data: Historical data on earthquake frequency, intensity, and associated damage in Hawaii is crucial for accurately assessing risk and setting appropriate triggers and payouts.

• Supported by actuarial models: Catastrophe models are essential for estimating the probability distribution of losses from earthquakes and setting appropriate rates. Actuaries use these models to understand the potential impact of seismic events and determine fair premiums.

In summary: A blend of these methods, focusing on both the specific location's risk profile and the collective risk within the insured pool, will be necessary for effectively pricing parametric earthquake insurance in Hawaii. This approach would be underpinned by robust data and actuarial models to ensure accuracy and fairness in pricing and payouts.

Etherisc: Do you have access to datasets to train such a model, or will you rely on third-party APIs?

EQuake: Here's a breakdown of how an actuarial model for earthquakes in Hawaii can be built based on available resources:

• Publicly Available Data: Information from the U.S. Geological Survey (USGS) can be utilized, providing seismic hazard models, earthquake catalogs, and information on past events in Hawaii.

• APIs for Real-time Data: APIs from organizations like the USGS can be accessed for real-time earthquake notifications, feeds, and web services that provide crucial information for modeling. These APIs enable developers to get earthquake information programmatically, which is essential for accurate modeling.

• Global Earthquake Model Foundation: The Global Earthquake Model Foundation (GEM) provides valuable resources, including exposure models for regions like the Pacific Islands, which can be useful for actuarial modeling.

• Risk Assessment Reports: Risk assessment reports from organizations like the UNDRR and PreventionWeb can be consulted, providing insights into the overall seismic risk profiles of Hawaii.

• Modeling Complexity: Actuarial models for earthquakes are complex, and the development process involves using statistical methods, seismic hazard assessments, and vulnerability analyses to estimate potential losses and assess risk.

• Model Validation: Thorough validation of the model using historical data is essential to ensure its accuracy and reliability.

By combining information from diverse public sources, research, and potentially available APIs, a data-driven approach to modeling earthquake risk in Hawaii can be constructed. https://www.usgs.gov/news/featured-story/new-usgs-model-shows-earthquake-hazard-probability-hawaiian-islands

4. Claims & Payout Mechanism

Etherisc: How will a claim be triggered? What constitutes a valid loss event?

EQuake: When an earthquake has been determined to have occurred by USGS HVO using the pre-defined intensity threshold: PGA & PGV that demonstrates a valid loss event.

Etherisc: Can payouts be triggered automatically via smart contracts using external data (e.g., earthquake magnitude from a trusted data source)?

EQuake: Yes, payouts can be triggered automatically via smart contracts using external data, which is earthquake magnitude from a trusted data source, which is USGS HVO.

Etherisc: Will payouts be binary (e.g., fixed amount if event > 5.0 magnitude) or variable?

EQuake: Payouts will be binary, fixed amount if event > 5.0 magnitude.

Decentralized Application

EQuake Parametric dInsurance

Developer: V. Gupta

Organization: Ethereum Foundation

GitHub ReadME: This dApp allows users to create self-executing insurance policies for earthquakes that release Ether to a list of addresses. It uses Oraclize to query the USGS website and count the number of earthquakes above a given magnitude within a given radius around a lat,lng pair and within start_date and end_date. Once the count is above 0, it means that an earthquake has occurred within the specified parameters, and the policy executes. The dApp interface shows a world map that allows the user to pick any location in the world, and automatically translates it into the corresponding lat,lngvalues. Further, they enter the remaining parameters and create a policy. Upon calling the ping() function of the smart contract (which is done via the "Release Eligible Policies" button on the dApp, but can also be done directly), the query is sent to Oraclize, which later triggers the callback function to release funds for all qualifying policies. https://github.com/wtf/dInsurance

Here's what would constitutes a valid loss event in an earthquake in Hawaii:

1. When an earthquake is detected the policy pays out. The lowest PGA & PGV for the closet residential home to Kilauea is the payout threshold for the entire island chain of Hawaii.

• Pre-defined Intensity Threshold: The policy is activated when an earthquake event is detected. It meets or exceeds this pre-defined intensity threshold, which is Peak Ground Acceleration (PGA), or Peak Ground Velocity (PGV) at the insured's location.

• Independent Measurement: The parameter (magnitude, PGA, PGV) must be measured by an independent third party, which is the HVO division of the United States Geological Survey (USGS)

Data about specific lowest and highest PGA (Peak Ground Acceleration) and PGV (Peak Ground Velocity) values for individual residential homes near Kilauea is generally not publicly available due to privacy and real estate concerns. However, broader information on seismic hazards and ground motion near Kilauea can be found through resources like the USGS Hawaiian Volcano Observatory (HVO), which monitors and provides data on volcanic and seismic activity in the area.

Background information on Seismic Thresholds: General seismic hazard information for areas near Kilauea

• High Seismic Hazard: The area around Kilauea, particularly the south flank of the island, is considered a high seismic hazard zone.

• PGA Levels: Probabilistic seismic hazard maps for Hawaii indicate that areas on the south side of Hawaii Island may exceed 1.75g (175% of gravity) for horizontal PGA with a 2% chance of exceedance in 50 years.

Factors influencing PGA and PGV at residential homes near Kilauea

• Distance to Epicenter: Shaking intensity typically decreases with distance from an earthquake's epicenter. Homes closer to Kilauea and its rift zones are likely to experience higher PGA and PGV levels during earthquakes.

• Soil and Site Conditions: The type of soil and underlying geology can significantly influence how ground motions are transmitted and amplified. Homes on softer soils or volcanic ash may experience higher PGA and PGV values compared to those on hard lava flows.

• Earthquake Size and Depth: Larger and shallower earthquakes typically generate higher PGA and PGV values compared to smaller and deeper earthquakes.

Additional notes

• Building Codes and Seismic Design: Residential buildings in areas of high seismic hazard near Kilauea are subject to specific seismic design provisions in local building codes to enhance their resistance to earthquake shaking.

• Monitoring and Reporting: HVO constantly monitors seismic activity in the area around Kilauea, including frequent earthquake swarms and ground deformation. I find information about recent earthquake activity on the HVO Earthquakes page:https://www.usgs.gov/volcanoes/kilauea/science/past-week-monitoring-data-kilauea https://urldefense.com/v3/__https://www.usgs.gov/volcanoes/kilauea/science/past-week-monitoring-data-kilauea__;!!PvDODwlR4mBZyAb0!QU4qB5YINeYq1N2KjgV3R5CnvwIrGic-Zi_62z1r89Fw6AeVsNyD9bM7mAaEiY8lZ4oemciv3NrIRWFdc9A8X65OQHI$

It is important to remember that Kilauea is an active volcano with ongoing seismic activity, and therefore represents the highest Peak Ground Acceleration (PGA), or Peak Ground Velocity (PGV) at an insured's location.

5. Risk Carrier & Regulatory Compliance

Etherisc: Who will carry the insurance risk? Do you have a partner insurer, reinsurer, or mutual risk pool?

EQuake: I will be negotiating with two reinsurers who are experienced on working with non-traditional risks. Vortex Weather Insurance https://vortexinsurance.com/already has a partnership with ExcurInsure for Supplemental Hurricane Insurance in Hawaii. And, Amwins https://www.amwins.com/ who work with alternative risk solutions such as parametric insurance for catastrophe-driven risks and losses not caused by direct physical damages.

Etherisc: Is the insurance product legally compliant in the target jurisdictions (insurance regulation varies widely between U.S. states and even more so internationally)?

EQuake: Yes, it is legally compliant in the target jurisdiction of the State of Hawaii under the Attorney General and the Insurance Commisioner.

• Have you consulted with legal advisors regarding licensure and consumer protection laws? Yes, I have written to the DCCA with an outline proposal of this exact document seeking guidance on how to properly establish an insurance business in the state of hawaii with my current insurance and notary public licenses.

6. Capital & Sustainability

Etherisc: How will you bootstrap the initial capital or collateral to ensure claims can be paid?

EQuake: I will be bootstrapping the initial capital amoung VC’s and investors within the Regen, Decentralized Science (DeSci), DeAcceleration (d/Acc), and Green Pill communities within the crytocurrency factions that support climate change intitiatives utilizing alternative methods for public goods and governance.

Etherisc: Is the model self-sustaining or does it depend on external subsidies?

EQuake: The model is not self-sustaining and depends on external subsidies. I will be applying for grants from the University of Hawaii where I am a student, specifically the University of Hawaii, Manoa School of Ocean Earth Science Technology and Water Resources Research Center where I was a member. I will also apply for grants from:

Hawaiian Volcano Observatory (HVO): https://www.usgs.gov/observatories/hvo

NOAA Pacific Tsunami Warning Center (PTWC):NOAA Pacific Tsunami Warning Center (PTWC),

USGS National Strong-Motion Project (NSMP):USGS National Strong-Motion Project (NSMP)

Incorporated Research Institutions for Seismology (IRIS):Incorporated Research Institutions for Seismology (IRIS)

Infrasound Laboratory at the University of Hawaii (ISLA):Infrasound Laboratory University of Hawai‘i (ISLA)

7. Governance & Trust

Etherisc: Who will govern the protocol? How will trust be established with end-users (especially in underserved or remote regions)?

EQuake: Dudoit Paralegal Services, Inc will govern the protocol along with the reinsurer for fiduciary responsibility. Pushing the code will be the responsibility of ETH Shield a subsidiary of Dudoit Paralegal Services, Inc.

Etherisc: Is there a DAO or cooperative governance model planned?

EQuake: Eventually, yes I would like to have a DAO that could hopefully be financially contributed to by public governance structures such as Gitcoin or Funding the Commons and other Web3 public goods accelerators.

Developers Info

ETHshield, a subsidiary of Kealohaku’uipa Dudoit dba Dudoit Paralegal Services, Inc.

Organization Github: https://github.com/ETHshield

Github Repository: https://github.com/ethereumdevnews

Base AI Agent Kit Applications:

Natural Disaster Insurance Platform:

https://smart-cover-ai-ethdevnews2024.replit.app/

Monsoon Guard AI Insurance App:

https://012acede-ed6b-4231-881b-ef7befe03004-00-1b4i54hejy0ch.janeway.replit.dev/

Hackathons:

PL_Genesis: Modular Worlds (Protocol Labs) 2025 Hackathon - Challenge: (NEAR) The Agentic Internet and Building AI-led Web3 Experiences

Chromion: A Chainlink 2025 Hackathon Entry: Aloha AI Shield - AI Decentralized Insurance Agent

ETH San Francisco 2025 Hackathon - Entry: NEAR Protocol AI Insurance Agent

Web3 Education:

The Ethereum Protocol Studies program (EPS) 2025
NEAR Protocol Developer Portal, 2024-current
Celo Developer Rewards Program, 2024-current
Base AI Agent Builder Platform, 2024-current
Chainlink Studies Program, 2024-current
SheFi Cohort Season 13, 2024
SheFi Cohort Season 14, 2025

Social Media:

Substack: Ethereum Developer News

https://ethereumdevelopernews.substack.com?r=57osqh&utm_medium=ios&utm_source=profile

Discord: Eth_Dev_News

Mastodon: DEF CON Social

Eth_Dev_News (@ethdevnews@defcon.social)

Farcaster: Ethereum Dev News

https://farcaster.com/ethereumdevnews

ETH Denver: ETH DEV NEWS

ethdevnews.ethdenver.com

Polygon: 0x8088fB532852E0860039707e6f8FB0f657444Fa1

AI Insurance Agent Demonstration:

Chromiom: A Chainlink Hackathon 2025

EQuake: Aloha Shield AI - Hawaii Climate Insurance is a comprehensive AI Agent that uses weather modeling to offer quotes for earthquake, hurricane, volcano and flood insurance in Hawaii.

AI Insurance Agent https://smart-cover-ai-ethdevnews2024.replit.app

Github Repo: ETHquake Blockchain Insurance for Hawaii demohttps://github.com/ethereumdevnews/hawaii-climate-insurance

YouTube: ETHquake Blockchain Insurance for Hawaii AI Agent Demo

Preprint

Preprint

Decentralized Parametric Earthquake Insurance Pre-Technical Implementation: EtherISC Smart Contracts Proposal (Hawaii)

Decentralized Parametric Earthquake Insurance Pre-Technical Implementation: EtherISC Smart Contracts Proposal (Hawaii)