Earlier this year, a major player in cryptocurrency security announced it will provide insurance coverage up to $100 million to protect against the loss of cryptographic keys. The company announced this offering following the recent debacle involving a Canadian cryptocurrency exchange, which – after the unexpected death of its CEO – was left without access to private keys for its cryptocurrency wallets containing more than $100 million in company money.
This is a fascinating development and will likely be the first of many offerings for digital asset coverage in global insurance markets. Initially, protections appear to be designed to address liabilities for cryptocurrency owners, with policies for coverage of losses relating to cybersecurity attacks, theft of private keys, insider theft and physical loss or damage of private keys and cold storage wallets.
But commercial insurance claims involving cryptocurrencies are also on the rise. Today, the industry is not fully prepared for how to deal with them. These claims seem like familiar claims on the surface, but have incredible uniqueness due to the involvement of cryptocurrencies. Insurance providers are asking questions including: should we add provisions to existing policies to exclude cryptocurrencies, or should new policies be written? How is risk qualified and quantified? How is coverage priced? Which policy are claims covered under, if at all? Are cryptocurrencies money, tokens, a security, or something entirely different?
The plot thickens when considering the lack of regulatory guidance for cryptocurrency markets and how organizations can leverage tokenized programs to enable new business models. At best to date, we’ve seen mixed messaging from the Securities and Exchange Commission and Commodity Futures Trading Commission. Numerous cases are proceeding between these agencies and companies that have or are aiming to launch crypto-based programs. But until legislation or case law has come forth, the waters will remain murky.
Insurance companies grappling with this new market should continue to work with their internal legal counsel and outside risk and cryptocurrency experts to answer questions like the ones above. Additional considerations include how it will protect business interruption relating to loss of digital assets, trace digital assets, investigate fraud and navigate the judicial system when these claims go to litigation. Tackling these discussions will determine how the insurer feels about the space and help it create an official stance on cryptocurrency assets. This stance will be the future guide for how policies are applied to unique cryptocurrency use-cases, and the process for validating and valuing this new category of claims.