InsTech London highlights cryptocurrency opportunities and potential pitfalls

With cryptocurrency use on the rise and becoming more mainstream, digital specialist InsTech London has produced a new report which seeks to identify both the challenges and opportunities associated with this emerging risk.

According to InsTech London, where crypto meets insurance, progress has been slow – in large part due to a lack of understanding between the insurance industry and the crypto ecosystem.

It added that the report, Demystifying Crypto: the insurance opportunities and challenges, has been designed to inform readers about the opportunities and challenges of crypto in relation to insurance, while being accessible to audiences new to crypto or new to insurance.

“The crypto market began in 2009 with the launch of Bitcoin,” said Henry Gale, research analyst at InsTech London.

“The total market capitalisation of all crypto assets now exceeds $2 trillion. Cryptocurrency uptake is increasing among the public and institutional investors. Estimates of the number of people owning cryptocurrency range from 100 million to over 300 million. Institutional asset managers hold $70 billion of Bitcoin.”

He added that this new market is disrupting financial services and creating new opportunities for the insurance industry, with new forms of insurance coverage and use cases for cryptocurrency as an alternative form of insurance capital being developed.

Indeed, Gale suggested, the insurance industry’s increasing interest in crypto assets is reflected in the choice of crypto as a theme for the seventh cohort of the Lloyd’s Lab innovation programme (September–November 2021), while brokers Marsh and Aon have both sold policies to large crypto businesses.

Lloyd’s syndicates Atrium Underwriters, Arch Insurance and Canopius are underwriting policies, though many in the broader industry are curious but not yet involved, according to Gale, who added:

“The insurance industry lacks knowledge about crypto, and the crypto ecosystem lacks an understanding of insurance, which has held back crypto insurance innovation so far.

This report is intended to bridge the gap between crypto and insurance by explaining relevant concepts and unpacking where crypto and insurance overlap.”

The report focuses on four areas in particular:

  • Crypto wallet coverage – protection against cryptocurrency funds being lost or stolen
  • Other crypto asset coverage – protection against additional risks that affect people who invest in crypto
  • Conventional coverage for crypto businesses – why businesses dealing with crypto assets are exposed to different risks
  • Cryptocurrency as an alternative source of insurance capital – how crypto investors could provide alternative capital to back insurance products

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