Team Leader - Digital Assets
As the emerging technology of digital assets continues to grow, digital currencies such as Bitcoin represent a significant opportunity for brokers and insurers, but do they have an image problem?
Understanding cryptocurrency as a broker
There is a high barrier to entry in the subject of cryptocurrency and distributed ledger technology. It is a complicated technology which many traditional financial institutions require greater expertise to effectively cover.
Further still, a spate of recent ransomware attacks linked to Bitcoin have only increased reluctance in the insurance industry to provide much needed capacity for underwriting this technology. But despite recent headlines, the perception of Bitcoin’s role in illicit activities is usually false and outdated. So, how can brokers encourage the insurance industry to do more to support digital assets?
1. Increase technological understanding
The first step is to ensure brokers understand the technology and the risks associated with digital assets, so they are active in engaging with underwriters. Our article highlighting the most common digital asset types and the differences between them is a good place to start.
Beyond understanding the technical workings of digital assets there are also many reputable studies that demonstrate the positive impact of Bitcoin and how adopting this technology could provide a brighter financial future for everyone.
2. Understand the risk-to-reward of writing digital assets
Once brokers are armed with enough knowledge and have helped insurers to understand this emerging technology, the next step is for underwriters to understand the risk-to-reward ratio of writing digital assets.
If we consider other emerging technologies such as AI, IoT or drones, finding the right terms and policies is relatively straightforward (if you have a broker that understands the tech). Most digital asset companies are run extremely competently because of a higher set of standards that they have to comply with compared to other companies in emerging technology.
Considerations for underwriters
- Get the latest information: As covered in this article the first step is to become informed of the developments and key areas of tech currency to remove any misconceptions and deal only in information rooted in fact.
- Consider adjacent industries: Whilst cryptocurrency is an emerging technology there are still many parallels with established industries. For instance, underwriters inclined to exclude crypto liability due to biases around its use in illicit purposes may consider the comparative risks of money laundering in relation to the world’s biggest financial institutions.
- Start collecting data: Insurers will often exclude crypto terms as they don’t have historical data to underwrite this space accurately, and that is an understandable reason. However the best way to collect data quickly is to start underwriting, and the sooner you start the more data you gather, which in turn means you can get to a better cost of loss faster than your competitors. Crucially, this means you can attract an outsized portion of the market - and in this fast growth sector there is a lot to be had!
As brokers help insurers understand the size of the opportunity before them, compared to the size of the risk, capacity will quickly expand.
The role of insurance in emerging industries
Through expanding understanding and expertise of the risks of crypto amongst brokers, underwriters and insurers the industry will be able to open up much needed capacity. Ultimately, this will allow risk to be placed more easily and effectively and help this emerging industry come into its own.
The digital asset space has both good and bad actors, just like every other area of technology. Cryptocurrency and distributed ledger technology are neither good nor bad in and of themselves, it’s always down to the human application that ultimately decides what shape the technology takes. Insurance is often an important enabler of industry and by providing insurance terms for digital currency businesses, insurance can play a role in enabling the entire cryptocurrency ecosystem.
Insurance for cryptocurrency businesses
A robust business insurance policy, including cyber insurance can provide specialist technical and financial assistance for cryptocurrency businesses. If you’re developing digital asset products, it’s a good idea to think about specialist blockchain insurance.
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