Cryptocurrency is becoming "more relevant, important, and prevalent" on the global economic scene by the hour, according to a recent Bloomberg report. With increased popularity, the matter of insuring Bitcoin, Ethereum, or Ripple is gaining traction among insurance industry leaders. As a small business owner, check out the text below to find out more about the latest trends, studies, and prognosis regarding the future of insuring cryptocurrency.
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Is Cryptocurrency Property, And Why It Matters
Insurance is one of the most competitive, fast-growing industries in the world, and it’s been on top of the latest trends in tech for decades. High-end SaaS solutions such as those offered at PathwayPort help insurance agencies stay ahead of the curve by employing automated workflows that drastically decrease the time brokers spend on communication with and marketing to their policyholders. Pathway’s intuitive marketing solutions automatically sends out renewal letter, billing reminders and insurance policies to policyholders by integrating into broker’s management systems - ensuring that their clients, whether they are crypto investors or not, are always protected.
It was only recently that the categorization of cryptocurrency as an investment instrument, or property, was debated in a court of law. In the case of Kimmelman v. Wayne Insurance Group, the IRS’ definition of cryptocurrency as "property" influenced the court’s ruling. Mr. Kimmelman’s first attempt to file a claim identifying his $16,000 in cryptocurrency as a financial asset was not successful. Due to the IRS’s definition of financial assets, however, there is now a chance that he will get reimbursed for his losses. The matter of categorization might appear trivial, but it can set a precedent in the way cryptocurrency is treated in both the legislative system and the insurance industry.
The Underwriting of Cryptocurrency Insurance
Underwriting in insurance refers to assessing the risks involved in insuring people’s assets. It is done individually, for each policyholder, be it a person or a business. In the case of cryptocurrency, this process has proven to be particularly taxing, and here is why. As more and more people decide to deposit a piece of their savings into cryptocurrencies, investing in insurance is increasingly becoming tempting. Insurance companies, however, are yet to decide whether or not this move is profitable for them, as the nature of crypto currencies price is very volatile and subject to massive For now, it is the general consensus that the cryptocurrency market is not big enough to bring substantial profits to insurance companies.
- Security concerns: While insurers still fear insuring online cryptocurrency, there are some examples of trailblazers in the industry. Coinbase, a San Francisco-based cryptocurrency exchange is one of them. Coinbase keeps 2% of its customer’s assets insured with Lloyds of London. The remaining portion of their coins is still kept in "cold storage", offline and inaccessible to third parties. Only "risking" 2% does not seem like a big step towards ensuring cryptocurrency, but it is nevertheless a step in the right direction.
- Volatility concerns: Cryptocurrency is prone to volatility, with changes in price ranging from 2-3 figures occurring on a regular basis. This complicates the process of calculating the premium, an amount of money a person has to pay for an insurance policy. That being said, Coinbase did decide to go for it, and more startups and exchanges will likely follow their lead.
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Paying for Insurance with Cryptocurrency
Some pioneers, such as another San Francisco-based company, Metromile, will soon let policyholders pay for their auto insurance policies with cryptocurrency. Metromille’s new pay-per-mile auto insurance plan is another example of the latest innovative trends being used in the insurance industry. The pay-per-mile system took off following the 2020 pandemic, as policyholders became increasingly frustrated with having to pay for full auto insurance premiums despite not using their vehicles durirg lockdowns. This goes to show that, despite the insecurities surrounding cryptocurrencies, insurance will likely be one of the first industries to embrace this new trend, just like many others.
Insuring cryptocurrency as property, as well as using cryptocurrency to make payments is definitely picking up steam in 2021. Despite the fact that the market is still underdeveloped, an increasing number of insurers are willing to give cryptocurrency a chance. In time, we can expect these early attempts to inform future decisions, and lead up to the gradual integration of cryptocurrency into the insurance industry.