The Risks of Cryptocurrency and Blockchain: How Ready Are We for the Future?

Cryptocurrency and blockchain are growing. The good news? The insurance industry's response is already robust.
By: | April 14, 2022
Topics: Emerging Risks | RIMS

“Over the course of the last few years, we’ve gone from a marketplace that nobody could even envision to a 2020 crypto/NFT [non-fungible token] marketplace valued in the range of $250 billion,” Scott DeVries, senior counsel for Hunton Andrews Kurth, began, as he addressed a rapt crowd of attendees at RIMS 2022 conference. 

His session, “Blockchain and Cryptocurrency: Can Your Business Flourish Without It?,” examined the consequences of cryptocurrency and blockchains’ rapid rise for risk managers and insurers. 

He presented alongside Lauren Robinson, associate general counsel for Filecoin Foundation and their talk was introduced by Sarah Twomey, senior director of risk management and insurance for Covetrus, Inc. 

Robinson opened the session by diving into some definitions of cryptocurrency, blockchain technology and other essential terms the audience may have needed to understand the risks posed by these new tools. 

Cryptocurrencies are essentially virtual currencies that can be mined and traded using the internet. Blockchain is a digital ledger that tracks crypto transactions, but it has other uses as well.

The duo then detailed what types of companies may have cryptocurrency or blockchain risk and what insurance options exist to cover these technologies.  

Who’s at Risk?

Though cryptocurrencies and blockchain technologies are growing rapidly, not every company is at risk. DeVries gave a brief overview of the businesses that may have blockchain and cryptocurrency exposures.

They are:

  • Platforms that allow clients to trade cryptocurrencies.
  • Businesses that pay in or accept cryptocurrency payments.
  • Companies that store the keys and digital wallets that secure cryptocurrencies and other digital assets like NFTs.
  • Companies that develop blockchain technologies. This may include companies that use cryptocurrencies or NFTs, but can also include firms that use blockchain ledgers to track things like vaccine temperatures or food safety
  • Investment advisors, who may be asked by clients whether cryptocurrencies are a sound investment.
  • Technology companies. 

How Are Companies Getting Insurance?

DeVries and Robinson noted that in its early days, cryptocurrency and blockchain’s growth was hindered by a lack of insurance coverage for these products. 

“There’s a significant lag between when a product … is developed and when insurance is available to cover it,” DeVries said. 

Some companies have looked for coverage in other policies. D&O, E&O, commercial crime insurance, specie insurance, cyber policies and kidnap and ransom insurance are just a few lines blockchain and crypto users turned to before coverages specifically tailored to these risks became available.  

“They looked at their specie policies. They looked at their cyber policies, but each of these had their own issues,” DeVries said.

The markets soon caught up by creating their own endorsements and policies for cryptocurrency and blockchain risks. In 2014, Great American issued an endorsement that covered employee criminal acts that resulted in Bitcoin losses.

Soon after in 2015, ISO’s commercial crime form added an exclusion for virtual currency, but they added a virtual currency as money endorsement, the presenters said. 

That same year, Bitcoin Insurance Agency was formed to cover risks. Other specialty and major carriers followed in the ensuing years. Now, the marketplace for these products is quite robust the presenters said. &

Courtney DuChene is an associate editor at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance