The last two years have been tumultuous for cryptocurrency. From its peak in November 2021, the market has shed more than $2 trillion in value, and some leading crypto companies have been either deeply wounded or gone under. For example, the cryptocurrency platform Celsius Network is a recent casualty, filing for bankruptcy this July, while other crypto companies have announced layoffs and frozen withdrawals.
The ever-changing Web3 space is risky for entrepreneurs and investors alike, and unfamiliar territory for insurers. So, what cover is available for Web3 firms through the peaks and troughs, and how are insurers responding?
The quest for insurance
Web3 firms the world over have struggled to protect their nascent and volatile industry. Insurers have mainly stood back and monitored developments, wary of the unknown but also keen to explore opportunities for new Web3 business lines. While cold storage insurance is widely available for digital assets, insurers have found it challenging to cover more specialised risks such as cyberattacks, internal and external crime, professional liability, and directors and officers liability.
Although conventional insurers remain cautious when considering cover for crypto firms, the landscape is changing. Bermuda-based Relm Insurance is one insurer that has made a name for itself in both the crypto and insurance communities. Relm began life as a captive insurer for its parent, Deltec bank, an institution used by many crypto businesses for the storage of their fiat treasury. In just a short time, Relm has become a leading insurer of hard-to-place digital asset risks and recently achieved an A rating from the US rating agency Demotech.
For more established insurers, with recognised S&P/AM Best A ratings, which can sometimes be a deal breaker for institutional businesses, risk appetites are growing. Beazley, which manages several syndicates at Lloyd’s of London, recently opened a pilot using its Lloyd’s innovation budget to determine whether digital assets is a class they could write more widely for cyber and professional indemnity. Beazley has also launched CryptoGuard, a specialist D&O solution to protect senior executives in crypto companies, reflecting a growing interest in this sector.
AM Trust is another example of an insurer that is now more receptive to writing crypto insurance, while Avertas calls itself “The world’s first cryptoasset insurance company.” Other insurers will follow as crypto becomes more mainstream despite its inherent volatility. Indeed, crypto insurance is sure to become more important given the instability of the cryptocurrency ecosystem and the need for balance sheet protection from operational risks.
What types of insurance do crypto businesses need?
The latest crypto crash comes as a reminder that digital assets carry extra risks and that regulatory uncertainty exacerbates those risks. Crypto businesses and insurers must focus on the following:
• Professional liability – protection against claims from third parties who allege they have suffered a loss as a result of a failure in professional/technology services
• Cyber– protection against cyberattacks, business interruption, ransomware, denial of service and liability from a cyber event
• Crime – protection against losses resulting from employee or third-party fraud
• Directors and officers’ liability (D&O) – protection for senior executives who are liable for the decisions they take on behalf of their companies.
Crypto and the future
Whatever the highs and lows of crypto, it will play a growing role in the global economy and should be firmly on insurers’ radars. Insurers must continue to monitor crypto developments and deepen their understanding and knowledge of digital assets. As an insurance innovator and digital specialist, Elmore is helping to guide the industry and manage risk in this fast-moving marketplace.
Written by James Love – Junior Client Executive of Elmore Insurance Brokers.
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