The growth of the crypto market is attracting other industries too. The insurance market is no exception. Companies getting into the crypto market require insurance so that they can safeguard their assets from loss due to accidents or theft. It is very important for crypto exchanges and other companies that hold massive amounts of digital assets owned by their customers. Thus, a new market opportunity arises for insurers by helping the companies to eliminate such risks.
A report in 2018 stated that insurance providers can make profits from crypto insurance. This has encouraged many insurance companies to provide products and services to the crypto market.
After the release of Bitcoin in 2009, most traders used self-insurance, which meant that they took responsibility for safeguarding their crypto assets and protecting their private keys. When there was a compromise in their security, the owner had to bear losses. However, with the growth in the market, self-custody was not practical. It was very difficult for big companies that had more employees. A big theft could make big exchanges completely bankrupt. There have been several such cases in the past.
When people from traditional finance systems entered the crypto market, they demanded viable risk management solutions. Large and regulated institutions like pension funds and mutual funds started expecting crypto exposure without the need to self-custody their crypto assets. Thus, there were market opportunities for insurance companies to offer crypto insurance.
Most insurers do not encourage underwriting their policies that cater to crypto companies. Their premiums are higher when compared to other businesses. Mostly the premiums of insurance will be dependent on historical data and most cryptocurrencies lack it. Volatility also impacts the premium as the number of coins insured will be reduced. The lack of proper regulations also makes crypto insurance more complicated.