How Digital Assets Are Pushing Independent Insurers To Think Outside The Box

CEO and cofounder at COVU.

Traditionally, consumer assets requiring insurance have been physical assets—homes, boats, cars, jewelry. We’ve all heard of celebrities that insured their body parts, and pet insurance has grown significantly since the start of the pandemic.

But consumers are starting to accumulate digital assets as part of their lifestyle portfolios, too. These digital assets may be items like NFTs, digital photography or music, digital tokens that represent physical objects and even cryptocurrencies. All of these items hold value and have the capacity to increase or decrease in value over time. And all of them can be lost, damaged, corrupted or stolen. And more NFT fraud means that buyers can be more easily duped by fakes on the market.

Adding new insurance products into a portfolio is nothing new for independent agents. Take pet insurance, for example. As pet ownership grew during the pandemic, so did the demand for pet insurance. For an agent already licensed in their state, holding a full property and casualty (P&C) license, adding pet insurance was just a matter of deciding which policies to sell.

But digital assets are a whole new ballgame.

Corporate Cyber Insurance

According to some legal experts, companies that deal in NFTs as part of their business may be able to insure those assets under existing cyber insurance policies. They point out that assets stored in digital wallets and some cryptocurrencies could also be covered under commercial crime insurance policies, depending on the type of theft or less. But they also agree that it’s important to read the fine print to determine exactly what is covered under any policy.

Recently, Aegis Trust launched an insurance policy provided by Lloyd’s of London that offers $25 million in insurance for tokenized assets held by institutional investors, hedge funds and exchanges. With the current lack of regulation and protection for NFTs, Aegis announced that it was adding this layer of security to its Digital Vault platform, which offers regulatory-compliant institutional storage of digital assets.

Consumer Complexities

For consumers wanting to insure digital assets, the path to success is still unclear, and conflicting advice is common. What we do know is this: Because NFTs and other digital assets do not exist in physical form, they don’t typically fall under traditional policies such as homeowner’s insurance or policies for insuring valuables such as fine art.

For now, independent agents may not have the perfect answer, but they do have an opportunity to help educate their clients on digital asset protection and how clients can best protect assets in the meantime.

As the market continues to define how to best tackle digital assets, agents or teams interested in adding digital asset policies to their future offerings can do some prep work.

• Stay informed: Stay up to speed on what carriers are doing to address insurance for digital assets. Strategies and potential offerings are changing rapidly, and you don’t want to be behind the curve. Insuring digital assets may be a growth opportunity for your agency, but for now, follow the conversations and watch for signs that indicate how fast the industry is moving toward offering true digital asset coverage.

• Client audit: Ask clients about their digital asset holdings, the type of assets they own, the monetary value and where they are kept to determine if they are protected in any way or insured as part of a digital wallet or other asset holding strategy. This audit can also help agents determine if adding future offerings for digital assets will be beneficial based on the potential volume of demand.

• Client advice: For clients who own valuable digital assets and store them on personal devices or tech, discuss the importance of insurance that covers the personal devices or tech itself. This could be homeowners or renters insurance or even specialized cyber, electronics or computer insurance. Help clients review policies to check for any recommended updates to personal property coverage or if their state requires an electronics endorsement. Keep in mind that these policies generally do not cover the contents of the device or data stored, so discuss appropriate security methods and backups with your clients so that their information is protected, even if a device is destroyed and covered under a policy.

• Plan for the metaverse: There are few insurers participating widely in the metaverse right now, but adoption will expand if consumers truly buy in to virtual engagement in the digital world. It is predicted that virtual marketplaces will be a big draw, with consumers buying digital versions of everything from name-brand handbags to dwellings to unique virtual experiences. So how do we insure these items or digital properties?

What’s Next?

It is no secret we are living in a technology-driven society, and the rising trend of digital assets is not diminishing any time soon. As popularity and value increase, the risk of attacks among cybercriminals follows. Experts predict cyberattacks will only evolve as new trends hit the market. Independent insurers have an opportunity to stay ahead of the curve and offer clients counsel on how to best protect digital assets. Agencies should carefully monitor the industry and think outside the box to reimagine insurance policies for the digital age.


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