How COVID-19 has made Crypto Insurances trend again
As investors shift their interest from traditional equity to digital assets, cryptocurrencies become more relevant in today’s financial world.
However, nobody wants to gamble their fortunes into a strong but still emerging crypto market. So, in recent years, insurance companies have been looking at coverage options for those who want to add Bitcoin, Ethereum, or DeFi to their investment portfolio.
In 2020, as a global pandemic is ravaging the world and the financial markets are dwindling, insuring your investments, digital or not, is more important than ever. COVID-19 has made crypto insurances trend again, and the insurance industry is exulting.
How insurable are cryptocurrencies?
Since its early beginning, the cryptocurrency market has shown excessive volatility. Some assets have gone from rags to riches, while others went the other way, and plenty of them never lived up to their expectations.
Cryptocurrencies are not the most convenient goods for insurance companies to endorse. A long history of hacks and burst bubbles shows that backing digital assets may not be worth the risk.
Only in 2019, the number of crypto funds stolen by hackers reached $4billion. The infamous Bitcoin rise and fall of 2017 showed that not even the strongest digital coin globally is easy to support with an insurance policy.
So, what could convince coverage brokers to take cryptocurrencies under their wing? What about a seemingly unpredictable outbreak of a phenomenon that would rapidly spread across the planet with dire economic consequences? You know, like a global pandemic?
How COVID-19 helps crypto insurances to trend again
Sometimes at the end of 2019, an almost incurable and highly contagious flu-like virus spurred in Wuhan, China. Thanks to today’s unprecedented level of planetary interconnectivity, the disease spread quickly across the globe, infecting more than 27 million people and killing at least 1 million in just 9 months.
While everyone had their eyes on the pandemic, cybercriminals did not waste time and launched a stunning attack on cryptocurrencies. Digital theft and crypto scams became such a high-risk alert that even the FBI warned about them.
The COVID-19 crisis has prompted a spike in life insurance sales. At the same time, it showed that a crisis is the best time for making money. Hackers are well-aware of it. Insurance companies know it better than anybody. Now, they face each other on the new battleground that is the cryptocurrency ecosystem.
Insurers sampling the crypto market.
The cryptocurrency environment is not stable or predictable. Still, it hasn’t prevented insurance companies from hovering over it before foraying the market slowly. Their main target now is to offer protection for crypto wallets against the increasing number of theft attempts.
Like an animal control officer approaching a rabid animal, insurers build up their courage in baby steps.
One of these small steps was made in April 2019 when London-registered insurance broker Lloyd’s agreed to cover a hot wallet of crypto holdings worth $255 million belonging to Coinbase. That figure amounts to nearly 2% of the customers’ assets held by the giant crypto exchange.
Lloyd’s did not stop here, and in March 2020, it launched a new cryptocurrency wallet insurance solution for Coincover. The brokerage company announced that this “first of its kind liability policy, with flexible limits from as little as £1,000, was created by Lloyd’s syndicate Atrium in conjunction with Coincover to protect against losses arising from the theft of cryptocurrency held in online, hot wallets.”
Lloyd’s immersion into the cryptocurrency world is not an isolated case. A not-so-distant Bloomberg report showed that some of the insurance industry’s biggest names are gearing up to provide bespoke options for businesses in the crypto ecosystem.
According to the same Bloomberg report, AON aims to take 50% of the crypto-insurance market. Other brokers like AIG, Allianz, Chubb, and XL Group are also looking into insurance policies for blockchain startups and crypto-wallets.
How would brokers benefit from crypto insurances?
Volatility, uncertainty, bubble bursts, and a high-risk for theft and scams wait for insurance brokers as soon as they dip their feet into the murky waters of cryptocurrency. Is it worth it? What’s in it for them, anyway?
Well, first of all, it is the promise of substantial revenue.
Insurance companies know that they cannot predict or fight off hacks effectively. So, they will not offer any coverage for hack attacks. Instead, they will focus on offering tailor-cut packages to fit the client’s needs against cyber theft.
Crypto startups may pay as much as 5%of their coverage limits, according to this Bloomberg report. Larger businesses that activate on the blockchain may opt to distribute asset coverage among several insurance companies. This way, they won’t have their eggs in a single basket when hackers decide to visit them.
Two years ago, the Insurance Journal estimated that annual premiums could reach as much as $10 million for theft coverage. With the COVID-19 outbreak and the surge in crypto theft risk, that kind of revenue has the potential to increase dramatically in the upcoming months.
Another reason insurance brokers look to take over the cryptocurrency sector is the promise that blockchain technology holds for their industry.
Insurance companies store ridiculous amounts of data about their customers, the insurance market, and other financial records. Organizing all this information requires an extremely secure management system that has to be secure, immutable, and easily accessible.
Coverage brokers have to provide critical information upon request to both their clients and the authorities. So, they have to operate on a platform that ensures stability, lightning-fast operations, and safe data storage.
Blockchain technology has already proven its worth in numerous non-financial cases. It can easily provide the insurance industry with a simple information management system that is also highly-secure, fast, and reliable.
By already covering crypto assets, the insurance companies set a firm foot in the cryptocurrency world, and they set the stage for a smooth adoption of blockchain technology.