Month: December 2022
Beyond financial apps that run on Ethereum, beyond oracles, irreplaceable tokens and blockchain-powered games are the crypto market. It is an unmoderated market for buying, selling, exchanging, and storing cryptocurrencies.
It all starts with Bitcoin
Bitcoin is the first modern cryptocurrency. They created Bitcoin as a general-purpose currency with the goal of replacing fiat government currencies. The idea was to be able to go to a clothing store and pay for your purchase by making a Bitcoin transfer, as easy as swiping your card through a post terminal. As the number of purchases that people make with old-fashioned paper money declines, it seems logical to create a new currency that benefits from computing power and network technology. It frees consumers from the limits of highly regulated currencies and bank cards.
Many crypto asset owners wonder if insurers offer protection for losses incurred after volatile market trends brought down the price values of digital coins. Actually, insurance companies, especially in the US, are hesitant to offer insurance coverages to crypto industry players. The aversion to doing so stems not only from the volatile nature of the business, but also because of the catastrophic hacking incidents that resulted in multi-million dollar cryptocurrency losses.
The reason behind the hesitancy is largely due to the nature and intrinsic traits of the crypto industry itself: (1) lack of industry policies and procedures, (2) defective internal controls, (3) flawed security standards and (4) lack of government regulatory support.
Finding Willing Insurers in the Residual Market
Insurers in the residual market might be willing to provide financial protection to owners of crypto assets. That is if the financial losses incurred were caused by data breaches, resulting in theft perpetuated by way of unauthorized transactions. However, crypto asset owners should expect higher insurance premium rates; probably several times more than those imposed by regular insurance companies.
What Exactly is the Residual Market of the Insurance Industry?
Reference to the so-called residual market of the insurance industry pertains to the group of special insurance companies that the state government designates as “last resort insurers.” They are known to provide insurance coverage to high risk individuals, which include submitting an SR-22 certification.
SR-22 is a certificate that the provider must file on behalf of a high risk individual; to attest the existence of an insurance policy that meets the minimum coverage required by the state.
An example are the high risk drivers who have had their license suspended for repeatedly committing driving infractions and serious offenses such as Driving Under the Influence (DUI) or Driving Without Insurance (DWI).
Generally, SR-22 insurers participating in the residual market are allowed by insurance regulators to collect higher rates of premium as a business concession. That way, they have greater chances of realizing profit from providing general and liability coverage to high risk drivers who go back on the road.
Due to the heightened risks to which SR-22 insurers are exposed, seeking for the cheapest sr22 insurance quotes requires extensive research and thorough comparison of price quotations given by residual market insurers. In all probability, the same approach applies to providers of cryptocurrency insurance. This is mainly because regular insurance companies are not inclined to offer financial protection for crypto asset losses.