How Crypto will Impact the Insurance Industry By Janifha Evangeline

How Crypto will Impact the Insurance Industry

Janifha Evangeline | Thursday, 29 September 2022, 15:11 IST

  •  No Image

The cryptocurrency markets started attracting players from other industries as they have begun to mature and one of them is the insurance industry. Owing to the market capitalization of crypto assets reaching USD 2.2 trillion in 2021 the cryptocurrency sector has skyrocketed. In an event Partner at Oxbow Partners, Mr Greg Brown, spoke to Saxon East regarding the rise of cryptocurrencies and how insurers are participating.

The rise of cryptocurrencies

The fast growth & success of cryptocurrency projects has been abetted by the proliferating ecosystem of supporting products & services. Cryptocurrencies – the electronic decentralized currencies implementing encryption techniques for facilitating global financial transactions without the requirement for a central authority has major corporate investors who have begun to take an interest

 This includes the American multinational Tesla, that acquired USD 1.5 billion of (bitcoin) BTC last year in the month of January or business-intelligence software company MicroStrategy, that holds an aggregate of USD 2.2 Billion of bitcoin, following the recent surge in popularity & price.

Insurers have started to show interest in cryptocurrency

The reason why insurers are not getting into the crypto planet quickly is because it presents certain risks from cyber-attacks on exchanges as well as users for price volatility on transactions. It still remains ninety-six per cent uninsured in spite of being a growing multi-trillion-dollar sector. However, a few of the early insurers are making moves as crypto goes away from a HNW user base.

As crypto-market underwriters

There exist 2 ways using which insurers can underwrite crypto-related risks. Underwriters can render cover for the crypto assets themselves. This can be in the form of crime as well as custody policies. for instance, it can be against theft, hacks/cold-storage key loss. The Great American Insurance Group was the 1st for doing so with its crime product in mid-2014. This covers bitcoin holders for forgery as well as computer fraud amidst the other things. From then, other players in this landscape have started to emerge. For example, Nexus Mutual, that was founded in the year 2017 by a former Munich Re executive, is one of the decentralized insurance funds that is operating on the Ethereum blockchain & rendering “discretionary cover” with community-driven management.

Also, insurers can render coverage for crypto businesses as well, alternatively. Very few providers have the capability to render such kinds of cover to crypto enterprises. Evertas is one such example: as it is “the world’s first cryptoasset insurance company”. While D&O is a specific cover in short supply generally but particularly in crypto, where insurers are still concerned about the legal & regulatory clarity. As law makers & regulators render more certainty it should become easier for insurers to offer cover.

Benefits for insurers

The insurance market is cautiously going towards for engaging with crypto. While crypto holds huge potential for attention & returns, that will only grow along with its use cases, its intangible & hackable nature still proves hard to understand, insure as well as regulate.

The 4 main benefits for insurers from being involved in cryptocurrencies include a new market opportunity for matching from the demand to the supply side of the crypto insurance market, a huge range of business models for covering with crypto that may facilitate in easing the concentration risk, a better investment alternative, and lastly huge media & customer attention for major insurers who are engaging with crypto.

Challenges for insurers

However, there are also 5 important challenges that exist and these are a hard technical underpinning, since crypto is still in a nascent stage & the risk profile not well understood, the volatility affecting premiums, concentration risk as several cryptocurrencies relies on a few platforms, and regulatory uncertainty & the high rate of change in regulation which is anticipated in the near term

A difficult insurance market is nothing but insurers are not highly focused on accessing new risks since the current lines of business become highly profitable.

What the future holds

Crypto is still a volatile market. this is because the average price of Non-Fungible Tokens went down almost seventy per cent from a peak of around USD four thousand in mid of February 2021 to around USD thousand four hundred in April 2021. However, this should not be an excuse for inaction. Cryptocurrencies already are playing a role in the global economy & are likely here to stay whether or not you think that crypto is an attractive long-term investment. It also requires the insurers to take a role too.

We see an opportunity for tech as well as non-tech giants & specialty insurers, that are set up for understanding & underwriting a market with such uncertainty on how the crypto boom will evolve. Also, insurers should look to test, learn as well as get familiar with the structures surrounding crypto.

 

CIO Viewpoint

Is Secure Access Service Edge(SASE) Part Of...

By Archie Jackson, Senior Director and Head of IT & IS, Incedo Inc

Cyber Security Tech 2021

By By Naresh Kumar Pathak, CIO - India & South East Asia, SEA Regional Information Security Auditor, ANDRITZ

BlockChain in Supply Chain

By Sugata Roy, MD & CEO, arodek Technology Consulting Pvt. Ltd.

CXO Insights

Blockchain: Revolutionizing Industries, One...

By Dr. Arvind Deendayalan, Global Practice Head - Blockchain, Infovision

Dissecting The Role Of DevOps In Contemporary ERA

By Kavita Viswanath, General Manager – India, JFrog

Advisory FOR CXOs At A Crossroads To Modernize...

By Agnelo Marques, Vice President & Head Blockchain, Mphasis

Facebook