From the insurance purview, it seems that investors are on the search for an alternative that can ensure liquidity without interference from a centralised authority. It is believed that certain monetary institutions have turned to cryptocurrency to provide insurance against financial uncertainties. According to experts, as cryptocurrency is not a legal tender, the factors impacting it are different from payment mechanisms such as bonds, stocks and bank deposits.
Insights from Max Life Insurance, an insurance company, stated that approximately 85-90% of life insurance frauds fall in the range of one lakh rupees to Rs 10 lakh. It is believed that a blockchain-based database can help validate authenticity of claims, customers and transactions related to the process. “As we go into 2023, insurance is one of the sectors that cryptocurrency can be used in. Since it is expected that there will be no middlemen, the process of claim can improve. However, we are still at a stage where cryptocurrency is being accepted as a mode of investment. Given the recent developments, there is also an increase in the demand to protect digital assets to mitigate risks,” Prashant Kumar, founder and CEO, weTrade, a cryptocurrency-based platform, told FE Blockchain.
Market-based research has highlighted that cryptocurrency-backed insurance carries the potential to ensure faster processing time, transparency in the system, and to reduce overall administrative costs involved in insurance settlements. As reported by Marsh, an insurance company, cryptocurrency in insurance can provide the benefits such as more regulatory clarity, increased adoption of digital assets, growth of decentralised finance (DeFi), surge in Bitcoin value, and amplify corporate transactions.
“I believe a big advantage of cryptocurrency-backed insurance is that users or the policy buyers can be rewarded by this mechanism. Bitcoin and Ethereum carry utilities in the DeFi space but the backing or underwriting of the insurance is yet to be explored. However, if added as a utility, it might be another positive for the community at large,” Dileep Seinberg, founder and CEO, MuffinPay, a cryptocurrency financial technology (fintech) platform, highlighted.
Reportedly, companies such as BitGo, Blockdaemon, Harpy, Armor.Fi, Nexus Mutual, Tidal finance, Nsure Network, among others, are involved in cryptocurrency-oriented insurance schemes and policies. As mentioned by Built In, a startup-based platform, companies which are expected to benefit from blockchain and insurance integration are IBM, Nationwide, ConsenSys Software Inc, Deloitte, and Lemonade.
Moreover, market analysis has predicted that since cryptocurrencies are still volatile in nature, a certain range of risk is unavoidable, even in the case of insurance. On the basis of information by Oxbow Partners, an insurance-based advisory firm, there lies a prospect for corporate and speciality insurers in the short-term, in terms of understanding and underwriting market. From a long-term perspective, insurers should aim to get themselves familiar with the cryptocurrency landscape.
“I believe the emerging blockchain ecosystem will itself require insurance. Cyber insurance can be taken as a template for coverage with extensions and endorsements for financial loss, crimes, professional liability, and surety bonds. The low cost of smart contracts and their transactions means that many products can be competitive for penetrating underinsured markets in the developing world,” Sathvik Vishwanath, co-founder and CEO, Unocoin, a cryptocurrency exchange, noted.