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RISK IN CONTEXT

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Cryptocurrency: 5 Trends to Watch in 2020

Posted by Sarah Downey January 29, 2020

Interest in the digital asset space is growing. But management liability insurers have been hesitant to offer capacity at competitive pricing to companies working with digital assets.

Last year, pockets of insurers in the US and the UK offered coverage to digital asset companies. But the cost tends to be high, the breadth of coverage is somewhat limited, and the process can be long. Some companies formed captive insurers to address the limitations of commercial insurance markets.

As underwriters continue to learn more about this space, their offerings will change. Here are five trends companies working with digital assets should watch in 2020.

Increased Regulation

Whether in the form of new rules or more clarity around existing ones, there is a global need for certainty surrounding digital assets, and we expect more regulation in 2020. For the underwriting community, more regulatory certainty means a greater level of comfort in offering coverage.

A Transitioning Market

Commercial insurance markets generally — and financial and professional markets in particular — are in a state of transition and becoming more challenging, with many buyers seeing rate increases and narrower coverage. This transition is likely to affect crypto insurance, but since the digital asset insurance space has always been especially challenging, we are cautiously optimistic that the impact will be limited.

More Demand for Solutions

Many digital asset companies have been driven to purchase insurance both for marketing purposes and to attract experienced directors and officers. In 2020, we expect insurance purchasing to also be driven by:

  • Adoption of digital assets by financial institutions and the need for coverage to reflect new exposures.
  • Increased use of third-party custodians, and the requirement that they be insured.
  • Emphasis on consumer protection from regulators and customers.

The expected result of these trends is higher demand for digital asset insurance solutions. And adoption of digital assets by financial institutions could make commercial insurers more willing to provide capacity.

Crypto Maturity

Insurers base their underwriting decisions, in large part, on data and history. As the young cryptocurrency market continues to mature, underwriters will likely become more comfortable offering coverage in the space.

Testing an Untested Market

Despite some highly publicized hacks involving cryptocurrency, the commercial crime and specie markets remain relatively untested in the digital asset space. Some insurers believe a small and controlled hack that tests how coverages work is necessary for underwriters to become comfortable with their offering. As the purchasing of coverage in this space expands, and more policies are offered, the higher the likelihood of an event testing the coverage.

Blockchain technology and digital assets offer opportunities to organizations, including the possibility to create new business models and improve on existing ones. With insurance coverage remaining essential to the growth and development of any business, Marsh’s Digital Assets Risk Transfer (DART) team remains optimistic that the above trends will lead to an increase in the comfort level of the commercial insurance market and their willingness to actively participate in this space.  

Sarah Downey