In the 10 years since the launch of bitcoin, billions of dollars in digital assets have been lost or rendered inaccessible.
The majority of these losses are most often caused by the failure of an infrastructure provider such as a custodian or exchange. As the cryptoasset space has evolved and expanded to include more retail investors, funds and institutional investors, the need—and risk—for infrastructure providers has increased dramatically.
Custodians, exchanges, and other concentrated holders of cryptoassets (e.g., funds, corporations with large holdings) are honeypots for bad actors and represent a significant aggregation risk.
Compounding this, most infrastructure providers offer limited insurance protection or none at all. And in some cases, providers may not understand or may misrepresent the insurance they do have have. D&O, E&O, general liability, stock cyber and stock crime policies are not designed to cover theft due to criminal activity. In fact, in 2015, ISO amended the commercial crime policy form to include a specific exclusion for virtual currencies that applies to “loss involving virtual currency of any kind, by whatever name known, whether actual or physical including, but not limited to, digital currency, cryptocurrency, or any other type of electronic currency.”
Bottom line: To prevent future incidents, the space will need robust insurance products and insurance infrastructure. The crypto market has typically been viewed as too risky to make insurance viable, but through significant innovation, all of that is rapidly changing.
New advances in InsureTech will ensure that cryptoassets are far easier to insure, thereby preventing loss and providing confidence in the minds of retail investors and institutions alike. All of these efforts are necessary milestones along the path toward universal acceptance of cryptocurrency as a competitive, thriving medium of exchange.
