Institutional interest and regulatory clarity could fuel crypto insurance growth: AM Best

While insurance penetration in the cryptocurrency sector remains very limited, greater interest from institutional investors and regulatory clarity are two factors that may help drive insurance growth in the industry, according to AM Best.

As ownership of digital assets varies widely across the U.S. population, quantifying the emerging cryptocurrency and digital asset insurance segment remains challenging. Many individual holders also prioritise anonymity and often avoid disclosing their assets.

In early June, Coinbase.com estimated the total cryptocurrency market capitalisation at over $3 trillion—excluding non-fungible tokens (NFTs), tokenised real-world assets, and DeFi-related products. However, this figure is subject to significant shifts.

AM Best noted that traditional insurers have long been reluctant to offer crypto coverage due to the sector’s non-traditional, intangible nature, extreme volatility, and the lack of actuarial data or claims history to support underwriting.

Edin Imsirovic, director at AM Best, said, “A limited number of traditional carriers currently write crypto coverage, often through surplus lines or specialty markets.

“This reluctance stems from a number of factors, including cybersecurity and theft risk, because crypto assets are vulnerable to hacking, and private keys are vulnerable to theft and fraud.”

The potential for catastrophic losses and accumulation risk has further hindered insurer appetite. With limited data and underwriting experience, many insurers struggle to assess price adequacy and have only cautiously offered crime or custody insurance with strict limits and security requirements.

Imsirovic added, “Insurers worry about loss aggregation, and as a result, insurers that do write crypto often provide low coverage limits.

“Insurers rely on historical loss data to price and model risks. For crypto, meaningful loss data is scarce, given the short history and many companies self-insuring in the past.”

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