Cryptocurrency, a form of currency that is entirely digital, has taken the world by storm this past year. In April, Bitcoin surged to an all-time high of $63,000. Its price has more than quadrupled since 2020 and is up more than 60% since the start of 2021 — driven in part by Fortune 500 companies, like Tesla and Mastercard, warming up to crypto. Despite its growing popularity, insurers have yet to fully embrace cryptocurrencies.
Scant regulation, legal ambiguity, and volatile prices make many insurers hesitant to underwrite cryptocurrency risks, but that’s not stopping fans of cryptocurrency from demanding more support from the insurance industry. Cryptocurrency investors and users want a way to protect their assets.
Available Insurance for Cryptocurrency
The global market capitalization of cryptocurrencies is more than $100 billion, but there is only $6 billion available in insurance coverage. While big-name insurers have yet to enter the crypto market, there are a few options for protecting crypto assets. In recent years insurers dedicated to insuring cryptocurrency— Coincover, Nexus Mutual, Etherisc, and Bridge Mutual — have emerged.
Available products include crime insurance, custody insurance, business insurance (including D&O), and decentralized finance insurance. Sharon Henley, Chief Product Officer at Coincover, explains these coverages. Crime insurance “comes into play if your crypto is stolen,” which she says happens more than investors might think. “Custody insurance kicks in when you lose access to your crypto keys or the business holding your crypto goes out of business.” Data showed that between 17 to 23 percent of all bitcoin keys have been lost, which Henley says signals a potentially robust market for custody insurance. Business insurance plans “primarily mean general directors’ insurance,” but the loose regulations, high market volatility, and high probability of cyber breaches are making it harder to get this coverage. “Also called smart contract insurance, “decentralized finance insurance seeks to ensure a cryptocurrency’s software is hackproof and that it’s delivering on the promise of the transaction execution.”
Although options are limited, crypto insurance coverage does exist.
The challenge lies in convincing potential crypto-insurance providers that the level of risk is manageable. Insurers see the lack of industry infrastructure and the historic failure to pass government security checks as unattractive risk-wise. The novelty of cryptocurrency deprives insurers of the historical data on losses, which further complicates calculating risk. Further, insurance providers — not to mention the general public — are relatively unfamiliar with how cryptocurrency works in the first place. What most people hear about cryptocurrency is high-profile news coverage of dramatic losses and market volatility or cyberattacks. Established insurance companies not only express a reluctance to insure cryptocurrency exchanges and investments, but also a disinterest in entertaining the discussion of entering the crypto insurance market. Faced with limited options and high premiums, some cryptocurrency investors are choosing to self-insure or forgo insuring their crypto assets altogether. Only time can tell what the future holds for cryptocurrency insurance.
