Introduction
The insurance industry’s adoption of cryptocurrencies is still in the early stages, but as these digital assets become more mainstream, we can expect to see them increasingly incorporated into insurance offerings and operations. This article explores how the industry is adapting to the rise of cryptocurrencies like Bitcoin.
Personal Lines
Currently, Personal Lines policies do not provide coverage for cryptocurrencies, as per the ISO Endorsement Exclusion.
Commercial Lines
Cyber policies are the most likely contenders for coverage. Crime policies that address employee theft may cover the loss of money or other assets, potentially including cryptocurrencies in some cases. While cyber coverage has traditionally applied to commercial risks, it’s a newer concept for personal risks. Given the rapid evolution of crypto assets, cyber coverage still needs to address the associated risks adequately.
Cryptocurrency in the Public Eye
A recent NBC News poll revealed some key points about cryptocurrency:
- One in five Americans has invested in, traded, or otherwise used cryptocurrency.
- Among demographic groups, men aged 18 to 49 are most likely to engage in crypto activities, with a participation rate of 50%.
- Only 19% of those polled by NBC News viewed crypto positively, while 25% viewed it negatively.
Digital assets are spreading as Capitol Hill works to introduce new rules for the market. Crypto advocates argue that assets like Bitcoin, Ethereum, and Stablecoins offer faster transaction speeds, lower costs, increased privacy, greater security, and opportunities to provide financial services to underbanked communities.
However, without significant legislative effort, the crypto market resembles the “Wild West,” according to Securities and Exchange Commission (SEC) Chair Gary Gensler. This might explain why only 19% of NBC News poll respondents viewed crypto positively, while 25% viewed it negatively.
The majority—about 56%—said they feel neutral or aren’t sure about the crypto industry. The crypto market has grown so large that in 2022, President Joe Biden signed an executive order directing government agencies to study its risks and benefits. While the administration voiced concerns about potential fraud and financing illegal activities, it also clarified that the U.S. has a geopolitical interest in developing the infrastructure and oversight needed to monitor crypto.
Many warn that a lack of federal oversight leaves consumers open to scams and dangerous price volatility. Even Bitcoin, one of the most popular cryptocurrencies, isn’t immune from significant price fluctuations. Investors and crypto exchanges have repeatedly asked Congress for guidance on asset classifications, protections for retail investors, and clarity on the jurisdictions of the SEC, the Commodity Futures Trading Commission, and the Federal Reserve.
Cryptocurrency Insurance: How Are Digital Assets Protected?
The cryptocurrency insurance segment is still in its early stages, creating a considerable coverage gap, especially for investors.
“Most insurance policies are designed for businesses and corporations, not for private consumers,” explained cryptocurrency exchange platform Bybit in a guide on its website. “Crypto wallets and exchanges purchase insurance policies with coverage designed to protect against cyber theft and security threats. Other types of coverage are still in development and may feature additional protection. However, these policies aren’t yet available for consumers to purchase.”
Given the cryptocurrency ecosystem’s unpredictability, insurance plays a critical role in protecting digital assets. Here are some of the most common questions investors ask about crypto coverage, along with the answers from industry specialists:
How Is Cryptocurrency Transferred?
While traditional payment systems rely on banks to verify transactions, cryptocurrency transactions are verified by miners on the blockchain. Miners run mathematical checks to ensure a transaction is valid, and most nodes must agree before it’s added to the blockchain.
Most people buy and sell cryptocurrency on crypto exchange services like Coinbase, eToro, Binance, or Robinhood. They can also transfer Bitcoin to others similarly to how they would transfer money to someone else’s bank account.
As more companies embrace cryptocurrency, people can do even more with it. Some companies, like AT&T and CheapAir.com, now accept cryptocurrency as a form of payment. You can even use cryptocurrency to pay your phone bill or buy travel tickets.
Some notable points about accepting cryptocurrency include:
- Accepting Bitcoin as a method of payment is similar to accepting other non-currency items, such as publicly traded stock certificates or precious metals like gold and silver.
- INGUARD accepts premium payments in Bitcoin.
- Great American Insurance Group can endorse a business “Crime policy,” providing employee theft coverage for Bitcoin.
- Bitcoin is a high-valued property similar to jewelry or silver. However, unlike stock certificates or other documents, Bitcoin has no physical presence. Theft of Bitcoin isn’t covered under a standard homeowner or business policy. Given the documented cases of significant Bitcoin theft, customers might want to insure against this risk.
Conclusion
The insurance industry has responded slowly to cryptocurrencies. As digital assets continue to grow in popularity, insurance agents must educate themselves and their agencies about this new asset class. It’s crucial to have a standard response ready when asked about accepting Bitcoin as a payment method or insuring digital assets.
Call to Action
Learn and educate yourself and your agency on this new asset category that your customers might need to insure. Develop a standard response for when your agency or company is asked about accepting Bitcoin as a payment method.
Legal Disclaimer
This material is intended to provide general background and insight. It does not constitute legal advice regarding any particular facts, circumstances, or issues. This material is not intended to serve as a substitute for legal counsel, and we advise you to contact legal counsel for specific analysis, drafting, and advice
More Information: Seek your trusted advisors Attorney, Banker, and CPA that your legal and financial interests are adequately protected. The information provided in this publication is not intended to be a substitute for legal advice. You should consult your legal counsel and make certain that you are in compliance with state law. These laws and rules are subject to change. If you have more questions about this guide, you can contact: OIA at (800) 555-1742 for the most up-to-date information.
Cited Resources
One in five adults has invested in, traded, or used cryptocurrency
NBC News poll shows
PUBLISHED THU, MAR 31 20225:00 AM EDT/ UPDATED THU, MAR 31 20225:38 AM EDT
Cryptocurrency news: 21% of adults have traded or used crypto, NBC poll shows (cnbc.com)
Answered – Top seven questions investors have about cryptocurrency insurance
Industry experts reveal how protected digital assets are
By Mark Rosanes; Aug 15, 2022
Bitcoin FAQ: A detailed guide to cryptocurrency and why senators are fighting about how to tax it in the infrastructure bill
Bitcoin, dogecoin and ethereum are among thousands of cryptocurrencies confusing Americans
By Dalvin Brown: Is the Innovations reporter for The Washington Post’s Financial section
August 6, 2021, at 2:34 p.m. EDT
https://www.washingtonpost.com/technology/2021/06/14/bitcoin-cryptocurrency-faq/#secondary-nav
