Cryptocurrency and bitcoin technology are continually gaining widespread popularity globally. They are used as a method of payment, investment or as means of raising corporate capital, and it seems they are here to stay. As such, this market is attracting numerous players from other industries including the insurance industry.
Essentially, cryptocurrency is considered to be ‘digital money’. It is associated with numerous significant risks as many cryptocurrency owners have lost a lot of their assets due to cyber-attacks, fraud or negligence. Therefore, the need for a cryptocurrency insurance market is real, especially as cryptocurrency becomes more important, relevant and prevalent in today’s economy. Here are a few things insurance agents should understand about the cryptocurrency insurance market.
1. It is wise to partner with an experienced intermediary.
The cryptocurrency market is not a market to just dabble into. It is wise to retain the services of a wholesale broker with experience and expertise in the crypto landscape and learn about it before embarking in it. A wholesaler or expert will assist and guide you through the marketplace, ensuring you offer extensive insurance coverage at the right price and that you are aware of the crypto ecosystem.
2. Should you assess D&O Insurance for initial coin offerings?
Some companies are offering to the public an initial coin offering, which is basically issuing cryptocurrency as an alternative to offering equity. Consequently, insurance companies are worried about the Securities and Exchange Commission, disgruntled coin purchasers, and other key players who may look at an initial coin offering as an unregistered offering of securities, hence exposing the insurer to law liabilities in the federal, state or foreign securities. The D&O marketplace is quite stable and pretty soft, hence many retailers have become comfortable with it.
3. Review the insurance coverage comprehensively and why it is important.
As with ordinary forms of coverage, it is advisable to regularly reassess your client’s coverage in relation to cryptocurrency exposure to ensure the limits and coverage is constantly relevant and appropriate. This is especially true about its crime coverage options. Given the distinct and volatile nature of cryptocurrency, ordinary crime policies may not specifically apply to this market as theft of these digital assets may include ‘phishing’ emails, social engineering, and wallet hacking or employee theft. Similarly, it is crucial to determine the market value of these assets in order to aid in the process of the valuation of the loss.
4. What makes it vital to comprehend underwriting considerations?
Agents in the cryptocurrency insurance market should be ready to undergo a thorough underwriting process with their clients. Some aspects to consider include internal financial controls, whether the digital currency is held in ‘hot’ or ‘cold’ storage, use of banks and third-party service providers, security protocols, overall financial status of the insurer and the experience of the management team. As such, the underwriting process in this market may take a lot longer than the usual underwriting process.
5. Why you should find an insurer with experience and good track record in cryptocurrency insurance.
Currently, few insurance companies offer cryptocurrency insurance, despite it being a big market to invest in. Before approaching an agent partner with a cryptocurrency or an initial coin offering-related insurance company, they should consider the premiums and the experience of the company in the cryptocurrency industry. It is especially important to ensure your insurer has a demonstrated track record in the industry. If not, make sure the client is aware of it as soon as you begin business together.
The cryptocurrency market is big and unpredictable, hence the need for an insurance option. Many companies are emerging as a result of this, thus providing a lot of opportunities for retail brokers. However, agents are advised to partner with insurers who are conversant with this unique market as it builds their credibility and clients will naturally gravitate towards them.