The insurance industry is slowly warming up the crypto industry, despite previously deeming the sector too risky to underwrite.

With wild swings and lost funds peppering the cryptocurrency landscape, insurers have largely steered clear of cryptocurrency companies, resulting in some large exchanges insuring themselves amidst growing risks. James Knox of professional service firm Aon said that recent losses in the industry have had “a chilling effect.” But now, it seems, insurance companies have woken up to this nascent sector, with several forming teams whose sole purpose is to tackle digital assets and their associated risks. “Previously, there wasn’t the demand that we’re seeing now, and over the last six months of last year, there’s been a real growth in demand from our clients to better understand this space and to be able to manage the risk in the space,” says the director of a crypto-focused team at insurance broker WTW.

An obstacle to insurance companies is the dearth of past claims needed to formulate accurate risk models and the limited education on cryptocurrencies within the insurance industry. High inflation, interest rates, and high volatility are key risk factors.

One company in Bermuda, Relm, has rigorous procedures for deciding whether to insure crypto mining companies, exchanges, asset managers, and remittance companies. According to the chief executive Joseph Ziolkowski, whether to insure a company is based on a due diligence process, where Relm requires audited financial statements, valuations, entity organization charts, and investor decks. “If we can’t say that, for example, all exchanges are good risks, then we need to find the exchanges that do actually represent a good risk, and the only way that that can be done is a diligent underwriting and due-diligence process in order to arrive at a decision to provide coverage or not,” he told the Wall Street Journal. Knox cites the strength of anti-money laundering and Know-Your-Customer protocols as a critical factor in the decision on whether to insure or not.

Crypto companies look to insurers to reimburse customers in the event of a security breach and protect senior employees from litigation costs. Neta Rozy, chief technology officer at Parametrix Insurance, believes that crypto companies are looking to insurers now to gain credibility, despite having previously held a general distrust of Wall Street and traditional companies. “Crypto evolved out of not wanting regulations and compliance, but they realized to gain the credibility of users, who were burned a bit in the past, some balance of compliance is necessary, as this industry grows,” she said. Parametrix specializes in insuring crypto firms against disruptions in cloud services.

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The post Insurance Industry Slowly Looking Into Crypto Policies; Compliance & Regulation Key Issues appeared first on BeInCrypto.

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