Why insurance is the deal-maker for crypto growth

Crypto is on the verge of going mainstream and when it does it will bring with it a swathe of growth opportunities for the insurance industry, according to Ben Davis, digital asset team leader, and Dan Ross, digital asset underwriter, at SME-focused insurtech Superscript.

The duo, who have launched a dedicated insurance product for crypto businesses, are excited by the market’s potential for more growth. So far growth has come about in spite of crypto’s poor image, intangible nature and opaque terminology such as distributed ledger technology, blockchain and digital assets.

Technically crypto is defined as a cryptocurrency that is a digital asset that can circulate without the need for a central monetary authority such as a government or bank. Well-known examples include Bitcoin, Ether and Dogecoin. Non-fungible tokens (NFTs) are generally built using the same kind of programming as cryptocurrency.

Davis, who began working on insurance for crypto in 2017, quickly saw a very clear lack of insurance solutions for businesses operating in this space. He realised that if digital assets such as NFTs were ever going to move into the mainstream then insurance would be essential.

“Historically it’s been very difficult for crypto businesses to meet contractual requirements for insurance,” Davis said.

A crypto business might land a contract to develop NFTs for a company such as Marvel or DC which has very large intellectual property assets. With a serious contract like that insurance would be crucial.

For anyone unfamiliar with NFTs, it helps to think of them as akin to an original Van Gogh painting—each has its own intrinsic value and cannot be replaced. The difference is that NFTs are digital. The true value of NFTs and other digital assets, such as people’s data, will become clearer as we move to the next generation of the internet, also known as ‘Web 3’.

“There is an amazing opportunity where you have people coming, big institutions, wanting to get into Web 3 but without the knowhow of how to do it,” Davis said. “Then you have the people in Web 3 who have the knowhow and are trying to get the contracts but can’t get them without the right insurance.

“That’s why Daylight, our crypto-dedicated insurance product, is so significant. It allows them to scale their businesses and protect them in the process.”

There is significant demand on the customer side and significant interest from insurers but “no-one to marry the two” and bridge the gap, the pair told Intelligentinsurer.com.

Ross said: “Not a single piece of business is written until that bridge has significant crossover and everyone knows what they’re doing.”

Development and growth

For Davis, the last five years have been dedicated to trying to get insurance solutions for the digital asset businesses so that they can move to the next stage of development and growth.

Crypto businesses go through “a really good business process” with insurance because it takes them through all the risks that can happen and asks them about the mitigations they have in place.

“It’s not just about a contract of insurance, it’s all the stuff that comes around it,” he said. “The crypto community has responded very positively because that’s the deal-breaker between them either getting an investor, or getting a big contract, or hitting their projections for the next investment round. We step in and make that happen.”

The concept of ‘Web 3 is an important element of future crypto growth.

“Web 3 is one of those all-encompassing terms, where it talks about the next iteration of the internet,” said Davis.

“Web 2 was all about Instagram and Facebook and user-generated content and data-sharing. But with data-sharing, as we’re finding out in the insurance industry, data centralisation leads to hacks and ransomware. What’s happened is the information of the many has been consolidated into the hands of the few.”

With Web 3 the information of the many will stay with the many—people will own their own data, he explained. Currently most people have their data monetised by third parties and they don’t get a cut of that.

“Web 3 means if people want our data they’re going to have to pay for access and we’re the ones that will monetise our own data,” he said.

“It’s trying to decentralise data, so people can own their own data, own their own wealth and build a fairer internet for all.”

So far, so egalitarian. But, as Davis admits, crypto has had a bit of a PR problem in the past. If you read the news headlines you could be forgiven for thinking that crypto is inherently risky and rife with crime. And that’s before the sceptics pile in to suggest that crypto is a pointless passing fad.

It’s certainly not all criminals and Ponzi schemes, according to Ross. “There’s a professional economy around it, people dedicated to it and people making serious money from good projects, products and services. They’re not scams, they’re not Ponzis, there are a lot of very worthwhile things going on out there.”

Davis added: “Crypto is on the verge of being mass adopted. I’ve seen some charts where digital assets have had higher adoption than the internet at the same time in the development cycle, so it seems that we’re at the beginning with new digital asset cover where the cyber market was 20 years ago”

Back then, companies started innovating with new forms, they were looking at deploying capacity into the cyber perspective. “Now we’re looking to do the same thing, and that’s how we’re getting insurers on board, developing these products, bringing capacity to the market.

“It’s education first where we’re coming from because everything flows from that, from an understanding perspective,” Davis said.

Ross concluded: “When my mum can explain an NFT to me, you realise a lot of people who would otherwise have nothing to do with this now have a baseline level of understanding. That doesn’t happen for fads.

“Crypto and blockchain are in the news every day, they’re here to stay.”