Protection for cryptocurrency? Crypto insurance, and the rise of digital currency.
Bitcoin was the first cryptocurrency introduced in 2008, and since then, the crypto industry has seen enormous growth. With over 7,550 cryptocurrencies in circulation and the global market capitalization reaching an all-time high of $3.3 trillion in November 2021, most financial experts would agree that crypto is here to stay.
Unlike other forms of currency like the U.S. dollar, crypto is digital and does not rely on a central authority to uphold or maintain it. These tasks are disseminated and handled online by crypto users. Because crypto is not regulated by the government, political body, or another agency, many are attracted to the potential opportunity for profit and revenue. People are both investing in crypto and using it to make purchases. In fact, more than 32% of small businesses around the U.S. accept cryptocurrency as a form of payment. Experts predict that the cryptocurrency market will grow at an annual rate of nearly 13% until 2030.
Crypto is popular, but how secure is it?
Despite rapid and tremendous growth of the market, it’s widely accepted that the crypto ecosystem is not only unstable, but highly susceptible to theft.
Consider these statistics:
- In 2020, “cryptojacking” – a cyber attack of sorts – increased by 28% and caused a loss of $82 million
- In 2021, global crypto thefts accounted for a loss of $681 million, with 76% of major hacks being decentralized finance-related
- The median loss of a scammed investor was nearly $2,000 from October 2020 – May 2021
- There were over 8,000 cryptocurrency scams in the US in 2020
An Opportunity for Insurance
The instability of the cryptocurrency ecosystem has naturally paved the way for crypto insurance to protect investors. According to a Bloomberg report, crypto insurance stands to become a “big opportunity.”
A spokesperson from Allianz, a global insurance leader, told the news publication that the company was exploring product and coverage options in the space because cryptocurrencies were “becoming more relevant, important and prevalent on the real economy.”
Currently, protection for crypto is extremely limited, primarily due to the relative infancy of the market. Insurance premiums are based on historical data, much of which does not exist for crypto, however many insurers are recognizing the need to provide protection on these investments. In 2014, the Great American Insurance Group was the first to offer bitcoin coverage to commercial and governmental Entities, “as part of its ongoing commitment to meet the evolving needs of its customers.”.
Just a few weeks ago, Breach Insurance, a Boston-based company, provides direct-to-consumer offerings, including “Crypto Shield,” the first regulated crypto insurance product for investors. This first to market insurance product covers over 20 cryptocurrencies to consumers using Binance US, Coinbase, CoinList, and Gemini.
Lloyd’s syndicate, Atrium, in conjunction with Coincover, introduced a new insurance liability policy to protect crypto held in online wallets from cyber theft or other hacks. Matthew Greaves, Underwriter, Atrium, said: “There is a growing demand for insurance that can protect cryptocurrency as it becomes increasingly popular. It is a testament to Lloyd’s that the market has put together an innovative solution to mitigate these new risks and protect against theft – from physical as well as online vaults – thereby providing customers with peace of mind that their assets are safe.”
Despite the potential risk for insurers because of crypto’s unregulated status, it’s clear that the demand for protection of cryptocurrency assets will only grow from here.
Has all this talk of innovation and opportunity in the crypto market piqued your interest in exploring the insurance industry? Contact Smith Hanley Associates’ Actuarial Recruiter, Rory Hauser at rhauser@smithhanley.com to chat further.
