Growing appetite for crypto risks sees insurance premiums tumble

By David Beach | 7 January 2019

The exciting story of crypto currency trading has seen many businesses and individuals amass huge fortunes over the last few years. Notable examples include Chris Larsen, cofounder of Ripple (crypto net worth: $7.5bn - $8bn) and Changpeng ‘CZ’ Zhao, CEO of Binance (crypto net worth: $1.1bn - $2bn), according to Forbes.

The continuing growth of crypto wealth and the acceleration of businesses building crypto into their investment portfolios has drawn attention from highly sophisticated criminal gangs who are drawn to the prospect of untraceable crime proceeds.

This situation has led many businesses to consider how they can protect their balance sheets against the increased possibility that the private keys, which are required to access their crypto funds, are stolen, lost or irrevocably damaged. There is also increased concern that employees with access to these private keys could themselves become kidnap or ransom targets.

The historical lack of guidance or clarity from the Bank of England and the Financial Conduct Authority (FCA) has left many financial institutions unsure of how to handle these crypto risks. In turn, this has created a lack of appetite from Insurance companies to provide any type of insurance solution.

But times are changing - and quickly, says Mark Robinson, who heads up FinTech and emerging Technologies at Finch Insurance Brokers.

“We are seeing a marked increase in the number of crypto currency custodians who are looking to protect themselves against potential losses whilst crypto funds are being held in their cold wallet storage. This is largely being driven by demand from their clients who are insisting on this protection before entrusting them with their crypto assets.

Robinson advises that, whilst capacity in the Lloyds of London market is still relatively limited, the opportunities for crypto companies to obtain cover at a more affordable premium is increasing;

“There have now been a number of successful placements into Lloyds, and this has started to increase interest and competition amongst the syndicates. This increased competition is benefitting clients in the form of lower insurance premiums. Robinson noted that initial premium levels equal to 5% of the insured limit were now being placed at levels between 1-2% in some cases.

Robinson comments, “the emergence of a more affordable insurance solution for businesses and custodians with multi-million pound exposures to a crypto currency loss can only be a positive step in helping this sector develop further and, with further innovations already on the way, the market should continue to improve as insurers develop the ability to model the potential losses more accurately.”

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