Cybercrime perpetrators frequently set their sights on cryptocurrency, yet insurance coverage options are scant.
Engaging in cryptocurrency activities just got a whole lot simpler for FDIC-supervised institutions, as the FDIC decided to scratch FIL-16-2022 in March - no more approval necessary for crypto-related activities! But hold your horses, banks are still responsible for managing the risks associated with digital currency.
Now, traditional money might be protected, but cryptocurrency operates in a decentralized system - complicating security and insurance coverage. Imagine losing your hard-earned assets to a digital wallet hack, only to find out your insurance policies won't cover the loss. Not a fun scenario, right?
The U.S. witnessed a 17% jump in crypto-related hacks in 2024, costing nearly $800 million in stolen assets. Spooky stuff, but insurance expert and author Chantal M. Roberts is here to help navigate these treacherous waters of cryptocurrency insurance.
Crypto policies are a work in progress
Pinning down the exact value of your cryptocurrency loss is the most challenging part of insuring these digital currencies. Since they're not backed by a government or tied to a physical asset, cryptos can be volatile. Insurance companies prefer to steer clear of assumptions when they don't know the risks.
Sean C. Griffin, an expert in cyber insurance, shares his insights: "A dollar is always a dollar, but the value of cryptocurrency fluctuates like a roller coaster. You could buy and insure crypto on Monday worth a specific amount and then Friday it could be twice, half, or even worthless due to a 'rug pull' - a malicious tactic commonly seen in the crypto world."
Another con, Griffin points out: "Sentimental loss? Not covered. If you forget your password or lose the key to your Bitcoin account, your policy might reimburse you only for the price you paid for it, not its current value."
Given the price swings of cryptocurrency, consider an "agreed value" limit if it's available. This means the carrier and you pre-determine the payment amount of the claim in the event of a total loss. It's like having an insurance policy for a classic car or piece of art, where prices can jump overnight.
A top-notch policy should also include assistance from a cybersecurity claims team in case of any loss.
Here's what you should be looking for in a cryptocurrency insurance policy:
- Protection against third-party fraud and hacking
- Coverage for lost private keys, whether through unintentional destruction or cybercrime
- Financial security for both hot and cold wallets
- Safeguards against cyberattacks, including malware, phishing, or ransomware incidents
- Protection for physical damage to devices storing your private keys, like fire or theft
- Insurance for errors in transactions, like sending your crypto to the wrong address
Remember, insurance companies rely on historical data to assess risk. Cryptocurrency, with its lack of regulation and extreme price volatility, makes insurers cautious. So, some carriers have started offering cryptocurrency-specific policies, but they come with limitations.
So, can I buy cryptocurrency insurance?
Existing cryptocurrency insurance mostly targets institutions, like exchanges, rather than individual investors. Some policies may cover exchange hacks or system failures, but options for individual consumers are still rare.
Griffin reveals, "I've seen plenty of lawsuits seeking crypto-fraud coverage, but it's yet to be seen." For now, specialized coverage options for crypto holders include specie insurance, standalone crypto policies, and excess and surplus (E&S) lines coverage.
A quick note on homeowners insurance and cryptocurrency
Homeowners insurance policies cover personal property up to the specified limits, but they don't typically cover crypto. Most policies classify money under coverage C, limiting the recovery of money, banknotes, coins, and smart cards to only $300 per loss. Additionally, most commercial crime insurance policies don't cover crypto exposures.
What about cyber insurance?
Adding identity theft or cyber insurance coverage to your home policy can help cover certain online risks. However, this coverage doesn't typically cover the actual loss or transfer of digital assets, such as cryptocurrency theft if your assets are stolen in a hack.
The takeaway: Is cryptocurrency insurance worth it?
As more people embrace cryptocurrencies, the demand for insurance coverage grows. But the unpredictability of the currency's value and the insurance industry's reluctance to adapt make covering crypto tricky. Proactive measures in the form of strong cybersecurity practices and secure storage methods remain your best protection.
If you're an investor looking for insurance coverage, keep tabs on providers like Bakkt or explore broader financial services offering custody solutions with insurance. Just remember, comprehensive and widely available insurance options designed specifically for cryptocurrencies are still in short supply. It's wise to collaborate with financial advisors who are up-to-date on the constantly evolving landscape of cryptocurrency insurance solutions.
Cryptocurrency insurance policies are a work in progress due to the volatility of cryptocurrencies and the lack of regulation in the industry. A top-notch policy should include protection against third-party fraud, hacking, cyberattacks, physical damage to devices, and errors in transactions. However, insurance options for individual cryptocurrency owners are still limited, with most coverage targeting institutions like exchanges.
