crypto-facility-property-insurance

Property Insurance for Crypto Mining Facilities — What’s the Big Deal?

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Jonathan Selby

General Manager


Thousands of cryptocurrencies exist in the digital marketplaces, far more than the number of fiat currencies today. Although cryptocurrency isn’t anything new, this industry faces unique risks, unlike any other space. Crypto mining facilities are increasing in popularity, resulting in NFT housed real estate affecting property insurance — but how? This post reviews some of the ways we’ve experienced this impact unfolding. 

Crypto Mining Facilities vs. Data Processing Centers

Crypto mining is how new units of cryptocurrency are entered into circulation. Bitcoin is the most well-known decentralized digital currency and is typically classified differently than other digital currencies. However, in this post, we use the term crypto mining concurrent with “Bitcoin mining.”

There’s a misconception that crypto mining real estate is the same as a data processing center. While they share similarities, crypto mining facilities face risks that a typical data processing center doesn’t have to navigate. Ask any insurance underwriter, and they’ll tell you that crypto mining real estate has unique risks, making these facilities more hazardous than data processing centers.

Specific Risks for Digital Mining Facilities

In addition to the nature of work crypto mining facilities complete, underwriters must consider various other risks. 

Fire Damage 

Crypto mining real estate is energy-intensive, mainly because of how much computer processing power it takes to do the job. One common strategy is to purchase property in remote locations where power is accessible, but the land is less expensive. For example, former factories or other manufacturing facilities are often repurposed as crypto mining real estate.

However, many of these properties lack adequate cooling or automatic fire suppression systems. As a result, the risk of fire damage is high. The remote location frequently makes it challenging for emergency responders to arrive promptly. These risks are vastly different from a typical data processing center, usually in a central place with up-to-code cooling and fire safety standards. 

Inadequate Coverage 

Unsurprisingly, most people think that crypto mining facilities and data processing centers are the same. So, that’s how they’re listed on many commercial insurance submissions. This lack of clarity frustrates underwriters, forcing them to dig for more information or write inadequate policies. 

For example, suppose you list your crypto mining facility as an electronic data processing center. Upon further inspection, the underwriter discovers the full extent of your operations. There’s a significant chance that the carrier won’t quote your company whatsoever. A better approach would be to disclose all vital information to get the consideration and coverage you honestly need. 

Equipment Replacement Costs

Crypto mining facilities tend to use high-end and hard-to-replace equipment like other tech companies. This computing equipment is unique and very different from what traditional data processing centers use. For example, data processing centers typically use a collection of routers or servers. However, crypto mining requires powerful graphic cards or application specific integrated circuits (ASICs) to unlock codes. 

Also, the cryptocurrency space is a highly demanding industry, calling for quick decision-making and lightning-fast transactions. Equipment breakdowns can be detrimental to crypto companies as they wait on repairs or replacements.  

Recommended Coverage for Cryptocurrency Companies

Naturally, general liability is the foundation of a solid risk management plan, and we’ve already covered the importance of property insurance. Additionally, most states in the US require workers’ compensation insurance. However, with the slew of unique risks crypto companies face, the following are some coverages we recommend considering:

Employment Practices Liability 

Any company with employees faces the risks of allegations, such as discrimination, wrongful termination, breach of contract, etc. Employment practices liability (EPL) insurance protects companies against lawsuits related to employment practice.

Errors & Omissions

Professional liability, also known as errors and omissions (E&O) insurance, covers companies in third-party or client lawsuits claiming substandard work or service. Work errors or oversights, missed deadlines, budget overruns, etc., often result in costly cases — but E&O insurance responds to these mishaps.

Directors & Officers

Shareholders, competitors, investors, etc., can sue a company’s directors and officers, putting their personal assets at stake. Directors and officers (D&O) insurance protects these assets from lawsuits alleging leaders of wrongful acts managing the business. In the Fintech space, we recommend blended coverage of D&O and E&O insurance.


Pro Tip

Did you ever wonder if D&O insurance was necessary for crypto companies to purchase? We published a post about it here: The Value of D&O Insurance for Crypto Companies

Cyber Liability 

Cyber liability insurance protects companies from third-party lawsuits relating to electronic activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.

Crime 

Whether employees steal from you, a thief robs your armored car, or you receive a forged check or fraudulent wire transaction, money theft happens in many ways. Crime insurance guards your company against damages from these particular crimes.

Digital Asset

A cybercriminal can use private key details to hack into a wallet and digitally transfer cryptocurrency into their anonymous account. Digital asset coverage protects against such hacks, providing protection from crimes and theft via electronic activity.

The Next Step

Remember, rushing your insurance submission isn’t the best bet, no matter how fast-paced the industry operates. Now is the time to slow down and evaluate your specific needs — we’re here to help!

Understanding the details of what coverage your company needs can be a confusing process. Founder Shield specializes in knowing the risks your industry faces to make sure you have adequate protection. Feel free to reach out to us, and we’ll walk you through the process of finding the right policy for you. 


Want to know more about Crypto Insurance? Talk to us! Please contact us at info@foundershield.com or create an account here to get started on a quote.

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