Experts say there’s been a resurgence of interest in cryptocurrency during the pandemic, and along with it, growing demand for insurance in the space.
“I think with the past couple years, there has been a resurgence and an immense focus on crypto, especially in the past year,” said Rachel Jenkins, leading customer success manager at Founder Shield, on this episode of The Insuring Cyber Podcast. “I think it has a lot to do with COVID … I just think that people have had a lot more time on their hands, so they’ve been on the computer more.”
Founder Shield is a digital insurance brokerage firm focused on the startup community. After launching her career as a management liability underwriter at AIG, Rachel spent several years as a client advisor for the Financial Institution Group at Marsh before joining Founder Shield in 2017 where she leads the customer success team. She said that with all of the recent attention from investors in the crypto space, more insurance carriers have been open to exploring it as well.
“We have seen a lot more carriers shift their position to be more open to at least discussing and determining what kind of products fit in their appetite and really re-exploring the crypto space,” she said.
However, Eyhab Aejaz, CEO and co-founder of Breach Insurance, said later in this episode that he jumped on the crypto bandwagon about 10 years ago, becoming interested enough to make it part of his career around 2012.
“Some of the personal interest that I had was around crypto and seeing what it was doing to traditional finance and the disruption that it was creating,” he said. “I couldn’t help but try to figure out how I could navigate my career into crypto.”
That’s exactly what he did after working for Liberty Mutual for seven years in leadership roles. He left the insurer in April of 2019.
“I actually left Liberty to start Breach, and I was very fortunate during my time there. I joined Liberty as part of their leadership program, post business school,” he said. “We were super early to build on cloud-hosted technology, and I think that kind of peaked my interest on new and emerging product opportunities.”
While he noticed momentum in the crypto space, he said he also noticed hacking events and risks that were going uninsured, creating a need for traditional insurance.
“I mean, there’s a gap between what traditional insurance knows about crypto and what crypto knows about traditional insurance,” he said. “We saw it as an opportunity to create Breach Insurance. The vision for us is to build an insurance company that can be synonymous with crypto insurance.”
The challenge with traditional insurance is that many underwriters are hesitant to enter the crypto space due to a lack of regulatory certainty, Jenkins said.
“Underwriters like certainty. They like a box. They like to know if you cross this line, you’ll get this penalty,” she said. “That allows them to set consistent rates amongst insureds, and in the crypto space, you’re kind of shooting in the dark because there isn’t a lot of case law and claims experience that shows how the government or different regulators are responding to bad faith acts by companies in the crypto industry.”
She said that as crypto sees more claims activity, underwriting caution may ease as insurers see how things play out, how much claims cost, how long they take to resolve and how many businesses are impacted. She said increased regulation could play a part in getting underwriters more comfortable as well.
“It’s going to allow a lot more underwriters to enter the space because they can underwrite with a lot more certainty about what is and what isn’t within the balance of legality and insurability when it comes to these products in these industries,” she said.
Despite some caution among insurers around crypto, Aejaz feels strongly that it’s an industry with ample opportunity for companies that don’t shy away from problem-solving.
“It’s totally green field,” he said. “It’s truly white space, and I think our team is taking the approach that we’re starting with the problems. We’re not starting with the solution like, ‘Hey, here’s this cool product. Let’s go try to force it into a product need.’ We’re truly starting with problems that exist within crypto and creating insurance solutions around that.”
Jenkins said she hopes that as crypto continues to gain popularity, more insurance solutions will pop up to help the space grow safely.
“In the near future, I hope there will be more markets, more capacity to write,” she said. “I hope that there will be more underwriters who have true understanding of the exposure, how to mitigate that exposure and how different companies protect themselves against the risks that insurance helps transfer.”
To hear more from Rachel and Eyhab, check out the latest episode of the Insuring Cyber Podcast, and be sure to check back for new episodes publishing every other Wednesday along with the Insuring Cyber newsletter. Thanks for listening.
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