S&P Global: cryptoasset maturation brings demand for insurance

Global insurance brands and experienced hands are venturing into the cryptoasset business to offer coverage with a mix of established commercial products and technology-backed risk management.

For cryptoasset companies, the hope is that insurance can provide legitimacy and investor reassurance to an asset class and currency often not well-understood and frequently associated with criminal enterprises. Meanwhile, insurance players from New York to London are wading into a sector where underwriting is untested but rich starting premiums are on offer to cover a market of a quarter with a trillion dollars of assets.

Just a fraction of the estimated $270 billion of cryptoassets have insurance cover, but without the government backing that the Federal Deposit Insurance Corp. provides for US bank deposits, cryptoassets need insurance to aid recovery in case of theft or other calamity.

Aon recently announced coverage for cryptoasset custodians for up to $500 million of their customers’ deposits using a Lloyd’s syndicate led by Arch Capital Group. The policy is a partnership with GK8, which provides the cybersecurity expertise intended to buttress the underwriting. GK8 also offers compliance controls for regulated investors, a service that bank depositors especially appreciate, said Lior Lamesh, the company’s co-founder and CEO.

One of the incentives attracting new underwriting to the space is the relatively high premium prices that come with a new product. On the other hand, those entering the market acknowledge that new risks can also be difficult to underwrite due to the lack of loss data to feed actuarial models. Claims is at least a big a challenge as underwriting, since a hack or theft could draw on blockchain, cybersecurity, accounting forensics and normal crime sleuthing.

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