The cryptocurrency price crash could accelerate the process of insurers rewriting policies to reduce potential exposure, according to the law firm RPC.
The company says insurers are likely to review or amend policy wordings to ensure they are not indirectly insuring losses arising from the activity of clients who may have exposure to the crypto market.
This is likely to include greater use of virtual currency exclusions, which would prevent policyholders from making claims for any losses on cryptocurrency assets
James Wickes, Partner in RPC’s Insurance group, said: “The relatively small number of insurers currently active in the crypto asset insurance space are likely to be keen to review the fine print on policy wordings to limit potential exposure from the volatility of the Crypto markets, as demonstrated by the recent crash.”
A relatively small number of insurance providers currently offer capacity to underwrite crypto insurance risk. Of the crypto-related risks that are currently insured, coverage is more readily available for theft.
These insurance policies typically stipulate that insured assets must be held in “cold storage” – or offline wallets.
There is a risk that investors may misunderstand the scope of the insurance in place for cryptocurrency exchanges and other public facing enterprises.
It is important, RPC says, that crypto firms are not overstating the extent of coverage, otherwise they may find themselves on the receiving end of claims.
James Wickes, who specialises in advising London market non-marine insurers on complex coverage disputes, said: “Volatility in the crypto market is proof of just how difficult it can be to model for some risks.
“The insurance market for these assets is in its infancy and it remains to be seen whether a sufficient body of insurance carriers will be prepared to provide enough capacity to meet the demand and how brave the market will be to extend coverage beyond the traditional theft risk.”
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