The insurance industry has a long history of providing critical support for major leaps in innovation. It is no coincidence that the modern insurance industry emerged at the same time as the industrial revolution. In fact, it is convincingly argued that the invention of fire and property insurance – a response to the Great Fire of London – lubricated the gears of capital investment and provided the impetus for the Industrial Revolution, which may have begun in London. In the first and every subsequent technological revolution, insurance provided a safety net for innovators and investors, and served as an external, objective validator of risk – thus serving as the source of encouragement and security needed to confidently test and break down barriers.
Today, we are in the midst of a new digital financial revolution, and the case for this new technology is clear and compelling. The recent White House executive order on “ensuring the responsible development of digital assets” further underscores this point and is a watershed moment for the industry, elevating the discussion around the importance of this technology to the national stage and recognizing its importance to U.S. strategy, interests and global competitiveness.
The lack of crypto insurance
However, considering that current cryptocurrency insurance capacity is estimated at about $6 billion – a drop in the bucket for an asset class with a market cap of about $2 trillion – it is clear that the insurance industry has failed to keep up and play its vital role.
This alarming lack of insurance protection for digital assets was specifically mentioned during a House Financial Services Committee hearing on the state of the market in December. If this situation persists, it has the potential to impede future growth and adoption.
Despite the obvious need and opportunity, why have traditional insurers avoided entering this space?