Bitcoin has been occupying the news but unless your only interest is
today’s this minute’s price, there are still plenty of unanswered questions for startups. Jamie Dimon calls Bitcoin investors “stupid” and John McAfee says the price is going to $1 million by 2020. Meanwhile the grey area in-between is filled with noise.
So we want to hit the pause button, take a step back and look at a very simple question. It’s one that startups ask us all the time:
Can I purchase insurance for Bitcoin?
(Spoiler alert: yup!)
1. You can purchase insurance for Bitcoin theft
It might come as a surprise but insurance companies have been offering this coverage for over three years. They probably wish they accepted premiums in Bitcoin back then but, even still, they’re doing just fine. That’s because insurers are making valuable changes to their old crime insurance policies.
In the realm of insurance, there has been a significant evolution in recent years, blurring the lines between traditional crime insurance and the emerging field of cyber insurance. Historically, crime insurance primarily safeguarded cash, securities, or valuable physical assets. For instance, if an employee committed embezzlement or a burglar made off with computers, the crime policy would come into play.
However, the landscape has transformed with the advent of computer fraud coverage, which has emerged over the past couple of decades. This development has introduced a crucial distinction between cyber and crime insurance. Now, in addition to the conventional assets, certain carriers are willing to provide limited coverage when an employee or a hacker pilfers Bitcoin from your system, highlighting the dynamic difference between cyber and crime insurance.
2. Insurance can cover Bitcoin ransom payments
Keep an eye out for the next cyber extortion news story…chances are the ransom will need to be paid in Bitcoin. (Here’s a big example). This is when hackers breach your security and lock you out. Oftentimes they’ll encrypt your data and threaten to delete or publicize it after a certain amount of time if the ransom isn’t paid.
Short on Bitcoin? If you have the right insurance policy, that’s not a problem. The right cyber insurance policy will specifically say they’ll cover ransom payments made in Bitcoin. Considering the volatility we’re seeing in the crypto market, it’s good to know that you don’t need to maintain a hefty wallet in order to properly manage risk. (Important note: your insurance policy is going to be valued in USD for the foreseeable future so FX risk will still exist).
3. Startups with higher cryptocurrency exposure may have higher management liability risk
Speaking of volatility, what happens if the Bitcoin “bubble” bursts? According to some analysts, it’s a matter of when and not if. We’ll leave that kind of theorizing to the crypto experts. What we can tell you: if a company carries a large amount of a certain asset on its balance sheet and (as the “industry experts” had been warning all along) that asset suddenly plummets in value, their investors may sue.
Fortunately we haven’t run into a situation like this yet but it would be a classic case of investors alleging breach of duty of care. This is especially important for hedge funds and other investment vehicles, but any company with crypto investments and shareholders/external investors bears this risk.
The solution to this problem is directors & officers insurance. D&O is designed to cover the legal bill and any judgements or settlements if your investors sue you for failing to uphold certain duties.
(Bonus) Cryptocurrency is going to make insurance better
The insurance industry is going crazy over cryptocurrency. Ethereum, in particular, has major carriers throwing money at it because the blockchain’s utility could extend well beyond simple currency. The development of distributed applications (daaps) and the refining of smart contracts could provide rapid and secure “if-then” solutions across platforms and industries. Already, insurer AXA is using the network to create a flight delay insurance product, fizzy.