Property Insurance for Crypto Mining Facilities — What’s the Big Deal?
Jonathan Selby
General Manager
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 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.
In addition to the nature of work crypto mining facilities complete, underwriters must consider various other risks.
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.
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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
When mid-market companies need more coverage than traditional policies, commercial umbrella insurance could be the answer.
What is Short-Term Rental Insurance and Why do you need it? Short term rentals aka short term vacation rentals are gaining popularity. Over 1 million homes and rooms are being rented out short-term in the U.S. This rapidly growing industry gives homeowners a way to earn some extra income and provides travelers with alternatives to
What is a Loss Payee? A Loss Payee is similar to an additional insured request you may see on a General Liability policy, but for property coverage. Often times companies lending you equipment or a landlord leasing you an office (aka third parties) will require this coverage, so that they would be indemnified for their
Our guide to insurance for Biotechnology companies. What risks do Ag-biotech & Biopharma face? What policies do they need?
The complete guide to commercial property insurance claims. How to be pre-emptive and the steps involved to make the claims process run smoothly.
Electric scooters and dockless bikes are popping up everywhere. We dive into risk management and the future of the industry.