Insurance providers are rethinking their approach to crypto

After years on the sidelines, the insurance industry is increasingly embracing the digital asset sector.

Many cryptocurrencies and trustees have been unable to obtain insurance for years or avoid it due to high premiums resulting from a shortage of insurers willing to take on industry risk. Some major exchanges have chosen to insure themselves instead.

But that is slowly changing as the traditionally risky insurance industry – from large brokers to start-ups – dips its fingers into the water, creating new teams focused on cryptocurrency, hoping to benefit from the industry’s rapid growth.

“Before, there was no demand that we see now, and in the last six months of last year there was a real increase in demand from our customers to better understand this space and be able to manage risk in space,” said Luke Speith, who last month he became director of the newly created digital assets team at insurance brokerage and consulting firm WTW,

formerly known as Willis Towers Watson.

The British startup and licensed broker Lloyd’s of London Superscript earlier this month launched a crypto insurance product called Daylight, which will cover technology liability and cyber insurance, the company said. He plans to expand coverage this year to include directors and employees, trusteeship and cryptocurrency digging.

The change comes when the crypto market saw a new wave of turmoil in recent weeks, a reminder of the highly volatile nature of an industry that still lacks significant oversight and investor protection. As traders flee risky investments amid rising interest rates and high inflation, more than $ 1 trillion in digital money has disappeared since November.

The demand for digital asset insurance also reflected a step in the evolution of the crypto industry, whose early supporters were often skeptical of Wall Street and government regulations. The industry is struggling with growing regulatory scrutiny as it seeks ways to gain public and investor confidence and attract more acceptance.

Crypto companies usually look to insure themselves against the loss of funds held by exchanges on behalf of clients in the event of incidents such as external theft and employee theft. They also often take out insurance for directors and employees, which protects executives and companies from costs related to investigations or litigation, as well as cybersecurity insurance against hacks and professional indemnity insurance to protect against negligence claims.

James Knox, regional technology leader at Aon PLC.


Bernadette Knox

The availability of insurance coverage also gives crypto companies and exchanges greater trust. Unlike most industries, some of the most popular cryptocurrencies are Coinbase Global Inc.,

Gemini Trust Co., Bittrex Inc. and have publicly announced that they have hundreds of millions of dollars in digital asset insurance.

Regulatory uncertainty over the cryptocurrency industry and a number of important and significant thefts of cryptocurrencies have made insurers reluctant to enter the world of cryptocurrencies, according to James Knox, regional leader in technology practices at professional services firm Aon PLC. He said news of recent cryptocurrencies had a “chilling effect” on potential insurers. Although some insurers, mostly based in London or Bermuda, are taking the risk, a number of insurance companies are still unhappy with the risk associated with insuring crypto companies, he said.

Gemini said it was offering $ 300 million in insurance for assets it held on behalf of customers covering theft, security breaches and fraudulent transfers, a spokeswoman said. The exchange, which works with insurance broker Marsh & McLennan Cos., Said it had demonstrated to insurers that it offered “a secure and secure exchange and trustee.” She expects the offer of digital asset insurance to meet the growing demand in the coming years, the spokeswoman said.

Neta Rozi, co-founder and Chief Technology Officer of Parametrix Insurance.


Parametrics insurance

“Crypto is evolving from a lack of regulation and compliance, but they realized that to gain the trust of consumers who have been burned a little in the past, some balance of compliance and regulation is needed as the industry grows,” said Neta Rosi, a contributor. . – Founder and Chief Technology Officer of Parametrix Insurance, which covers business against technology interruptions.

The New York-based Parametrix began adapting its products to the crypto industry earlier this year by providing insurance to help crypto companies mitigate financial risks during cloud outages. Demand for cloud insurance has risen amid cryptocurrencies after traders and investors have filed several lawsuits seeking millions of dollars in damages. The cost of Parametrix’s policy varies depending on the size of the company and its cloud infrastructure, but the annual premium can range from $ 10,000 to $ 500,000 or more.

One reason premiums remain high is that crypto is still a nascent industry that lacks significant claims to accurately quantify risks, while insurers have a limited understanding of how blockchain technology works behind cryptocurrency, participants said. industry.

Jorge Pesoc, Chief Legal Officer of HBAR Foundation.


Jorge Sand

Jorge Pesoc, chief legal officer at the crypto-based nonprofit HBAR Foundation, said there were only a few options when he recently sought insurance for the organization. The same was true when looking for a former employer, Tacen Inc., he said.

Many crypto companies, such as token issuers, are considered high-risk by insurers, Mr Pesok said, because they face frequent inquiries from regulators that are voluntary but can quickly turn into formal investigations. “They either don’t want to cover it and create exceptions for token issuers who know this, or they will cover it and charge an extraordinary amount for it,” he said.

However, it is advantageous for a crypto company to have a D&O insurance policy, as it is useful for attracting new directors and employees in the company, he said.

One insurer operating in the cryptocurrency sector is Bermuda-based Relm Insurance Ltd. The company, founded three years ago, has taken out insurance for cryptocurrency mining operations, major exchanges, asset managers and money transfer companies around the world, according to Joseph Ziolkowski, co. – Founder and Chief Executive Officer. Without the wealth of loss data that insurers have in traditional industries, Relm delves into the details of each account before taking over any crypto company.

Joseph Ziolkowski, co-founder and CEO of Relm Insurance.


Viveka Jung

“If we can’t say, for example, that all exchanges are good risks, then we need to find exchanges that actually pose a good risk, and the only way this can be done is to take care carefully and process due diligence to a decision has been made on whether or not to provide coverage, “he said. Mr Ziolkowski added that his company asked crypto businesses to provide ongoing audited financial statements, valuations, organizational charts of entities and the latest packages for investors, among other elements, in the signing process.

Other factors that insurers look for in their decision to provide coverage include whether the crypto company has strong anti-money laundering and customer knowledge procedures and internal controls, according to Aon’s Knox.

“Insurance brokers need to be innovative, more than ever, to deal with the crypto industry, and the crypto industry is growing fast and strong,” he said. “Insurance brokers and companies need to be very agile and innovative to take care of the best interests of their clients.”

Although the SEC has not announced major action against major cryptocurrencies, the commission has threatened to sue companies offering crypto loans. WSJ’s Dion Rabuin explains why this part of the crypto market has caused such a backlash. Photo: Mark Lenihan / Associated Press

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