Library: Mint – Crypto assets may lead to losses for insurers

Executive summary:

Crypto assets may lead to unexpected losses and opportunities for new forms of insurance coverage from an underwriting perspective, global reinsurer Swiss Re said in a report.

Watch out for crypto risks

According to the report, certain crypto assets may be implicitly covered by existing property or cyber policies. “Consequently, there could be a notable rise in claims in those lines of business,” it said.

Further, risky investments in crypto assets and unexpected associated tax liabilities may threaten company viability and trigger credit and surety claims.

Exclusions leading to court cases

Swiss Re also warned that efforts by individuals and companies to hide funds from authorities by investing in crypto assets may see an increase in the number of court cases and, in instances where illegal activities are not properly excluded in insurance policy terms and conditions, lead to D&O claims.

D&O insurance claims are paid to directors and officers of a company or organisation for losses or reimbursement of defence costs if legal action is brought against them.

“Due to ESG issues along the value chain of crypto assets (e.g., energy consumption), regulatory uncertainties and high volatility of the assets, dealings in engagement with crypto assets may lead to financial losses and reputational damage,” Swiss Re warned.

The findings are the part of Swiss Re’s 10th edition of SONAR report, which highlights emerging risks to global insurance companies.

Risks are all around us

In the past reports, the reinsurer flagged a global pandemic, geopolitical conflicts, surging inflation and an unstoppable climate crisis as potential risks.

“Hackers reportedly made off with several billions of dollars in virtual assets in 2021. An open question for insurers in this regard is whether certain crypto assets are implicitly covered by existing property or cyber policies,” the report said.

Notably, re/insurers have not yet made significant investments in the sector due to the high volatility of the assets and other uncertainties.

The company highlighted that with the rapid growth of the crypto asset sector, the question of insurability of such assets with new covers becomes more relevant.

In the report, other emerging risks explored relate to eroding trust in public health and medical science, challenges in construction, commercial space age, quantum computing as well as accelerating climate, infrastructure and health hazards.

See the full report for more…

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