30 January 2020

Commercial Risk Europe: Insurance market for digital assets and blockchain set to grow

Demand for insurance to cover digital assets and crypto-related liabilities has been growing, according to the broker. In particular, cryptocurrency firms – which include cryptocurrency miners, exchanges, wallet, vault, payment services and blockchain technology providers – are seeking directors and officers insurance and commercial crime cover, which protects against the theft of cryptocurrency from a wallet. They are also looking to buy specie insurance, which covers private encryption keys held in cold storage, as well as cyber, and errors and omissions insurance.

However, the cryptocurrency insurance market is very challenging, according to Sarah Downey, co-lead at Marsh’s cryptocurrency insurance division DART. The cost of insurance for cryptocurrency firms is much higher, and coverage more limited, than for traditional financial institutions, especially for those holding digital assets, she said. The process of obtaining insurance is also more complicated and takes longer than it does for traditional financial institutions, she added.

The cryptocurrency insurance market was “hesitant and uncertain” in 2019, according to Ms Downey. “There was limited capacity in the insurance market but there were also pockets of growth compared with 2018, and the markets were more participatory in 2018 than in 2017,” she said.

At the same time, the commercial insurance market is becoming more “challenging” in general, with increased premiums and narrowing of coverage, said Ms Downey.

“The crypto-insurance market has always been more challenging. While we do expect to see some impact on the crypto-insurance market based on what is going on in the traditional market, we are cautiously optimistic that the crypto market will not see as large an increase as the traditional markets are seeing right now,” she said.

“However, there is limited capacity and a limited number of insurers participating in this space, and that could create additional challenges. In 2020, it will be interesting to see how the traditional market might impact the crypto market,” she added.

The crypto-insurance market has yet to be tested by a large loss, according to Ankur Kacker, cold storage and specie expert at Marsh’s DART unit. There were a number of cyberattacks in 2019 resulting in the loss of billions of crypto assets, but none of these were insured, he said. “What we want to see going forward, however, is an insured loss so that the market and wordings are tested,” said Mr Kacker.

There have also been a handful of cryptocurrency D&O claims, according to Ms Downey. “It’s fair to say the insurance market is waiting to see how the litigation and regulatory landscape plays out, but all this claims activity helps shape the cover and is not necessarily a bad thing,” she said.

Full article on Commercial Risk (subscription required)

© Commercial Risk Europe