With the cryptoasset and blockchain markets growing rapidly, new research from Evertas, the world’s first cryptoasset insurance company, reveals 88% of senior insurance executives see this market as attractive for insurers over the next five years.
Some 90% of insurance executives expect the level of investment from insurers in their cryptoasset underwriting teams and propositions to increase between now and 2025, with 26% anticipating a ‘dramatic rise’. Overall, during this period, 92% anticipate the level of capacity the insurance sector provides to the cryptoasset market to grow, with 28% expecting a ‘dramatic increase’.
However, Evertas warned of the complex interplay of risks concerning cryptoassets and blockchain systems that can lead to a wide range of losses and outages. Its findings reveal that 48% of insurance executives believe they only have a ‘poor’ or ‘average’ understanding of these, and 28% say the sector is not good at keeping abreast of the rapid changes here. Evertas believes the level of knowledge insurers have is much worse than its research findings suggest as the industry has invested little in understanding the cryptoasset and blockchain markets.
Evertas president and COO Raymond Zenkich said, “Our research shows that insurers see the cryptoasset insurance sector as an attractive growth market. However, by providing only around $1bn of insurance capacity for the sector, insurers have only really been dipping their toe in the water when it comes to insuring crypto and blockchain assets. However, as the sector matures and becomes increasingly accepted by regulators, corporates and governments, the insurance sector’s interest in it will also rise.”
Maturity in the sector will take a while, as Evertas views the cryptoasset market to be partly unsustainable due to lack of capacity from insurers. A single significant incident could ‘kill the market’ for long periods of time, said CEO and founder J Gdanksi.
“Insurers need to invest in building their knowledge of cryptoassets and their teams of underwriters in this space. However, this cannot be done overnight – it took us two years to develop our proposition. Unless the insurance sector can address these challenges and provide greater capacity, the cryptoasset and blockchain industries will suffer. Without this, the adoption of investments and projects in this space will be limited as risk committees will not approve them,” he said.
They have also said that the risks associated with cryptoasset are more complicated than the insurance sector perceives. These complexities have contributed to inconsistent underwriting based on factors outside of the risk such as the influence of their broker or their existing business relationships with carriers.
Evertas warns that the underwriting lacks scale, automation and efficiency. This means it is hard to be repeated, making renewals potentially more difficult in the long run. It points out that the insurance industry’s overall nascent understanding around the nuanced and varied threats in the cryptoasset and blockchain industries means it is hard for insurers to identify new risks facing insureds and keep clients informed of developments in this area to assist in preventing losses. M