The insurance industry has a long history of providing important support for major leaps in innovation. It is no coincidence that the modern insurance industry and the industrial revolution emerged simultaneously. Indeed, it has been convincingly argue that the invention of fire and property insurance – in response to the Great Fire of London – lubricated the gears of capital investment that powered the industrial revolution and is likely the reason why it started in London. Through the first and subsequent technological revolutions, insurers offer a safety net to innovators and investors and become objective risk validators on the outside – thus becoming a source of encouragement and security needed to test and eliminate obstacles with confidence.
Today, we are in the midst of a new digital financial revolution, and the case of this new technology is clear and interesting. That’s new White House executive message about “Ensuring the Development of Responsible Digital Assets” further emphasizes this and is a moment for the industry, raising discussions about the importance of technology at the national level and recognizing its importance to U.S. strategy, interests and global competitiveness.
Lack of crypto insurance
However, given the current crypto insurance capacity of approximately $ 6 billion-a drop in the bucket for an asset class with a market capitalization of approximately $ 2-trillion-it is clear that the insurance industry is failing to keep up and has an important role to play.
Lack of insurance protection for these digital assets is special referred to in December House Financial Services Committee hearing on market states. If this situation continues, it is likely to disrupt future growth and adoption.
Why don’t traditional insurance companies enter this space even when there are clear needs and opportunities?
Traditional insurers face some fundamental obstacles in responding to the new risk classes posed by crypto. The most fundamental is the lack of understanding of this technology that is often contraindicated. Despite the technical understanding, challenges such as classifying new risk types and nuances correctly – for example, those related to hot, cold and warm wallets and how technology, business and operational factors are overwhelming – remain. The problem is exacerbated by rapid changes in the industry, perhaps best illustrated by the emergence of new and sometimes confusing risk classes, such as nonfungible tokens (NFT).
And of course, many insurance companies are still licking their wounds for rushing to write cybersecurity policies in the early days of dot-com without knowing the risks and huge losses that often result.
In the meantime, according to for Chainalysis, approximately $ 3.2 billion in crypto was stolen in 2021. In the absence of risk mitigation options, that amount is enough to give responsible financial institutions a consideration of actual participation in this space. serious heartburn. In contrast, U.S. banks generally lose less than $ 15 million to fiat robberies each year. One reason why bank robberies are so rare and unproductive (successfully) rate of only about 20% when netting offenders on average only around $ 4,000 per event) is in order to be usable, generally U.S. banks must have a blanket guarantee insurance qualification, which requires security measures designed to limit such losses. In this way, insurers not only manage the risk of loss due to robbery but create an environment in which those losses are less likely to occur, therefore.
Need for crypto insurance
They apply to insurance against the loss of crypto assets. Items stored in insured wallets are not only protected, but are more likely to be lost, hence, because the underwriting process imposes a high level of multidisciplinary expert supervision and high compliance requirements.
The needs and benefits of crypto asset insurance are clear. But under the circumstances, it is clear that traditional insurers will not be able to address the risk of crypto assets with a reasonable timeline. However, the solution must come from within. We need crypto-native solutions that match the needs of the industry, with the flexibility to cover the full spectrum of crypto asset risks, products and services, including NFT, decentralized financial protocols, and infrastructure.
The benefits of a home-based risk solution are many.
In particular, dedicated crypto insurance companies have greater industry knowledge and expertise, enabling higher quality coverage, which is also compatible with greater security and safety for the crypto industry as a whole. Because of this level of understanding, crypto-native insurance companies will be able to create risk mitigation products with the flexibility to meet the unique and rapidly changing needs of the industry. Then, once done, the company could expand its insurance capacity by the order of trillions of dollars by partnering with the traditional insurance market. Finally, a dedicated crypto insurance sector will better meet legal and regulatory requirements, ensuring that insurance shortages do not prevent the adoption or growth of crypto.
Because of all this, what prevents crypto-native insurance solutions from being able to solve the problem?
Ironically, in the case of crypto asset insurance, the industry is largely choosing to direct investment resources towards future crypto projects that will be negatively impacted by lack of insurance capacity due to lack of investment in the space. .
That we are in the midst of a new technological revolution is undeniable. Likewise, the fact that insurance has played an important role in helping past technological revolutions to reach their full potential. The very lack of crypto asset risk protection that is currently in place is unsustainable and poses an unacceptable threat. It is important that the crypto community understands the dangers posed by the status quo with the lack of crypto asset insurance options.
The good news is that we got so far by solving technological and economic problems that we can’t solve on our own, and we believe we can do it again.
This article was co -authored with Sofia Arend and J. Gdanski.
This article does not contain any investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
The views, thoughts and opinions expressed herein are those of the authors only and do not necessarily reflect or represent the opinions and opinions of Cointelegraph.
Sofia Arend is currently the communications and content leader at the Global Blockchain Business Council (GBBC). Prior to joining GBBC, Sofia worked at the Atlantic Council, a global top 10 think tank for national defense and security. Sofia received a Bachelor of Arts degree in International Relations and Global Studies with high honors from the University of Texas at Austin, where she competed as an NCAA Division-I recruited rower.
J. Gdanski is a privacy, security and risk management expert, a key leader in the corporate blockchain space and CEO and founder of Evertas – the first company dedicated to the insurance of crypto assets and blockchain systems.