La Playa, a CWIC supporter, look beyond the media hype in blockchain's most prominent use case, cryptocurrency, and explore the insurance risks.
The advent of Fintech, and especially Cryptocurrency, has disrupted archaic markets, flustered regulators and created a brave new world of risk for its participants. There's still an element of Wild West in the sector, and many insurers remain shy of the risk involved. While the insurers' position is absolutely understandable, it's up to the insurance broker or agency to educate and provide the necessary reassurances to get insurers engaged.
Heavy reliance on data, technology and infrastructure, evolving regulatory structures and the shadowy threat of cyber risks heap unpredictability and uncertainty on any new entrant to this space.
With headlines like “SEC says bitcoin funds raise 'investor protection issues' (Reuters Jan 19 2018) highlighting the risks of cryptocurrency investments, the insurance implications are huge and underwriters are wary:
Bitcoin's 1,500 percent surge last year stoked investor demand for any product with exposure to the red-hot asset. A host of companies are jostling to launch exchange-traded funds which would open up the cryptocurrency to a broad retail market
Macro influencers like governments will no doubt heavily impact the rate of growth in the sector – and its eventual regulatory structure. Bitcoin is especially popular in Asia, and governments’ positions there have had a very significant impact on the price of BTC. A recent ban by South Korea and the Chinese government halted trade due to a perceived lack of centralised control, while the Japanese authorities were actively encouraging the sector, until recent events with Coincheck, which are likely to push regulators to reconsider. In this context, western regulators are taking an equally conservative approach. While not faced with actual losses, regulators seem to be taking a preventive approach to protect vulnerable investors.
Taming the Wild West? Bitcoin meets the regulators
Regulation is a key chapter in the story of cryptocurrency. What position will regulators take?
While the philosophy of cryptocurrency and all derivative technologies and related applications is deeply rooted in libertarian principles, ultimately these 'products' will need to get sign-off from governmental regulators if they're ever to take off. Regulatory principles like Know Your Customer (KYC), Anti-Money-Laundering (AML) and consumer protection are the main concerns of regulators. In many cases, cryptocurrencies – and especially blockchain technology, can ease rather than heighten regulators' concerns. And generally the crypto, blockchain, libertarian community will most likely agree with these principles. You'll find that regulators and the community share the same goals - it's just a matter of agreeing on the means of getting there.
Insurance for Cryptocurrency Businesses
Meanwhile, it's critical that you can reassure your clients that:
- You've identified your business risks
- Your management team has what it takes in experience and expertise
- The company has the ability to pay its liabilities
As a specialist Fintech insurance broker, La Playa can help you identify and mitigate your business risk, and structure insurance protection, backed by A rated insures, to help generate the confidence of your clients and other stakeholders.
Regulatory supervision would give underwriters a framework to be able to offer coverage terms to protect your business and your customers. The London and Lloyd's insurance markets, to which La Playa has access, has historically specialised in emerging risks, and as much as insurers would want to cover your business, the argument for 'Why?' needs to outweigh the argument for 'Why Not?'. And while that's the best part of my job, I need you to help me…
4 Key Pillars of Cryptocurrency Insurance
1. Errors & Omissions Insurance
In a sector which evolves daily, even a well-managed business can find itself in dispute with a client over an error, a delay or alleged breach of contract. Errors & Omissions Insurance (E&O Insurance) provides indemnity for losses you are legally liable for if you make a mistake or are negligent, or if your product or service is defective, inadequate or fails to perform.
Failure to defend your business adequately could cause irreparable reputational damage - not to mention the financial implications.
We can help you review your contractual obligations to identify the extent of indemnities that your clients require.
2. Directors & Officers Insurance
Directors & Officers Liability Insurance (D&O) is now considered a crucial form of protection for all businesses, and is often a requirement before investors and board members risk their personal assets to serve your company.
Legally, the directors of a company and the company itself are separate entities and so may both be defendants, separately or jointly, in any legal action or prosecution. D&O can help to protect the personal assets of individuals and, crucially, to cover the costs of their defense.
Directors of all companies are now held, at an unprecedented level, to be personally responsible for actions and decisions they make on behalf of the company - putting their personal assets at risk if those decisions are tested in the courts.
3. Crime Insurance
Have you considered the risk of fraud in your organization? It pays to think through the risks of fraud at work and check you've got the right insurance protection in place.
Crime Insurance protects your business from losses that are a direct result of employee or third party dishonesty.
4. Cyber & Privacy Insurance
The invisible threat of cyber-crime, combined with the potential for tech infrastructure to fail, and the ever-evolving regulatory landscape, represents a new minefield for modern crypto business. Unless your organization carries specialist cyber insurance coverage against such perils, you won’t be protected against the unusual risks that arise in cyberspace.
In the wake of numerous high-profile cyber-crime cases, including network and data breaches, businesses globally are shoring themselves up against a range of new global tech and cyber risks.
As a young business pioneering in cryptocurrency, it's vital that you can reassure your investors and stakeholders that your business - and their cash - has the best possible financial protection. But, while insurance for Fintech businesses is increasingly available, insurance for Cryptocurrency businesses can be less easy to secure.
As experts in customized insurance for Fintech businesses, La Playa is the ideal partner to design a watertight insurance solution for your business risks in Cryptocurrency.
Find out more about La Playa's Insurance Options at their website.
Find out more about La Playa's Insurance Options with their CFO's Guide to Cyber Insurance.