In recent years, the insurance market has undergone a technological change, closing the gap between the old financial world and the new digital world, with its apps, services without humans and systemic technological changes in order improve and streamline ongoing work.
Beyond the technological change, the change is primarily a change in perception, towards technological progress. It is reflected by recruiting employees with technical knowledge, opening departments dealing with innovation, and of course developing insurance products that respond to the risk component of the new and emerging technologies – blockchain and virtual currencies.
The world’s largest insurance market is based in London’s Lloyd’s, which “opened its doors” to companies involved in blockchain at early 2018. Today, there are few insurance companies that, because of business and strategic decisions, have agreed to be active players in this field and to provide insurance solutions for companies operating in this area.
Since the blockchain and crypto field are considered as a high risk in the insurance market, making it very difficult for companies to obtain insurance solutions for existing business operations and exposures. The high degree of risk directly influences the policy terms, premium, deductibles and most of all, the complicated procedures that must be carried out to obtain quotes for policies policy that are standard and common in the business world.
The difficulty in the field is reflected in the strengths and capabilities of the brokers, underwriters, and the companies that seek to insure themselves. The efforts and procedures that must be carried out are the similar as the insurance processes of the world’s largest companies such as NASDAQ companies, giant corporates and even companies that have undergone significant insurance events, and now have a particularly sensitive process to manage.
The insurance market has been challenging over the last two years, and we are experiencing this not only at high-risk companies. The processes are getting tighter and more protracted, and the insurance companies, as a transversal and business decision, are reducing their exposure vis-à-vis companies in various fields, and systematically increasing premiums to recoup losses of recent years.
This fact does not make it easier for blockchain companies, and beyond being a legitimate company with financial resources for paying a premium and doing business, the underwriters must also believe and trust the brokers who bring the blockchain companies to London, said after doing their internal checks.
There is a real meaning for an experienced broker who has developed personal and business relationships with underwriters and insurance companies. Said can be an advantage for “opening the door” to insurance companies for bidding and even negotiating to improve the terms of the offers.
Today, the commercial products available from Lloyd’s market for crypto and blockchain companies are:
Directors ‘and officers’ insurance that provides protection vis-à-vis claims filed against them, personally for unlawful acts, which were in the course of their duties at the company, and which caused financial harm to potential claimants. It is important to note that the directors and officers of the company have personal and direct responsibility under Companies Law, and thus they have to pay out of their own pocket huge sums, all for decisions made as part of their positions with the company.
Coverage can be extended to claims arising from ICO / STO (expanded below).
Professional Liability Insurance:
Professional liability insurance covers the liability of a company, its managers and employees arising from failure to fulfill their professional services as a result of negligence, error or omission which caused damage to third parties (customers, suppliers, etc.).
Cyber insurance provides insurance coverage in two primary layers:
Third-Party: Damages caused to third parties of the insured party as a result of a cyber event (customers, suppliers) such as breach of data, class actions, information theft, credit cards, and more.
Party A: Damages to the insured party without third party claims. For example, loss of income, administrative fines and extortion, destroyed technical equipment and more.
Above said two layers, is coverage for expenses that include legal services, cyber experts for incident respond, regulatory investigation expenses, PR and more.
Cyber insurance for blockchain companies does not include digital asset coverage, which must be covered by dedicated policy. Although these insurance products are considered commercial in the insurance market, yet to get them, need to manage a complex, sensitive, and exact processes with Lloyd insurance companies. Moreover, there are other insurance products suitable for blockchain companies; involving more complex procedures and requiring the client’s commitment to full cooperation.
Virtual Currency Issue Coverage (ICO / STO / IEO):
Insurance companies are well acquainted with the public issuance procedures from their good experiences (and the bad in recent years) with public companies that go through the public issuance process (IPO). As a result, there are a limited number of insurers willing to take on the risk of claims stemming from currency issuances (ICO, IEO and STO and the other derivatives of the issuances). Of course, to get the coverage, insurers will carefully consider (beyond any reasonable doubt and standard) the company’s executives, offices and the procedures they conducted during the issuance.
Digital Asset Insurance:
Digital asset insurance held in wallets is the hottest area in the insurance world. Companies that provide wallet services, cyber security for private keys, exchanges, custodians, and any other company that holds digital assets as part of its operations are eager to insure themselves.
Without getting into the known controversy regarding efficiency and the level of security, this area is divided into two primary sectors:
Cold Wallets: wallets that are disconnected from the Internet. As the Lloyd’s insurance market is well acquainted with commodity insurance, it is naturally “easier” for it to insure companies that provide cold wallet services.
Hot wallets: wallet services on cloud. On the other hand, regarding companies that offer solutions to hot wallets – the procedures are entirely different, more complex and even need to tailor a personal policy for each company according to its technological structure.
In conclusion, insurance companies continue to develop new products following technological developments. The blockchain field considered a high risk, and thus, the quality of coverage and premiums are different from the usual high-tech world.
As insurance companies come to believe in this field, regulation will become more evident, they will meet and get to know entrepreneurs in the field and even embed blockchain technology into their systems, we will see a change in the quality of insurance coverage, premiums and especially the procedures that have to be carried out to receive the sought after coverage.
Therefore, it is essential for blockchain companies to receive solutions from an up to date global broker, who will locate the most appropriate insurance alternative, and there is no doubt that insurance creativity in this field is required.