If you invest in and hold cryptocurrency and/or non-fungible tokens (NFTs), it’s important to protect your assets. Insuring them can be tricky, however. Generally, it isn’t as easy as adding them to your homeowner’s or renter’s insurance policies. Cryptocurrency and NFTs are typically excluded from most property insurance policies. In other instances, your assets may not be insurable by traditional means, so you’ll need to protect them in other ways.

So, what can you do to help protect your digital assets? Read on to learn how the insurance industry is managing this challenge, and what it means for you. 

The Challenges of Insuring Crypto and NFTs

If you own digital assets, can you simply include them on your homeowners, renters or condo insurance policy, or add a rider for extra protection? In most cases, the short answer is no. In April, the Insurance Standard Office (ISO) wrote a new standard homeowners coverage form that specifically excludes crypto and NFTs. As its name suggests, an exclusion is essentially something that is not covered by your insurance provider. That means any losses related to your digital assets won’t likely be covered.

If you can’t protect your digital assets with homeowners insurance, where can you turn for coverage for your crypto and NFTs? Well, that’s an interesting question. Digital assets are an area where many insurers are proceeding with caution. Their inherent risks and nascency create a conundrum for carriers—it’s challenging to properly understand and price the risk. When it comes to insuring NFTs specifically, since the market is so new, insurers have difficulty calculating the potential loss for something so abstract in an evolving emerging marketplace.

With physical assets, underwriters can gain diversification benefits. That isn’t the case with digital assets; the risks leave them exposed. As such, most cryptocurrency policies are supported by a handful of Lloyd’s of London syndicates rather than one insurer absorbing all the risk. Lloyd’s of London isn’t an insurance company. It’s a marketplace for insurance buyers and sellers, which makes it more flexible than traditional insurers when it comes to risk management.

In addition, the insurance industry is developing new forms of coverage to address the risks of digital assets, especially NFTs. But to date, it’s still largely a scattershot effort, which means if you’re looking for a policy to protect your crypto and NFTs, you need to shop with care. Commercial, crime and cyber insurance policies could offer such coverage, but it’s important to read the fine print, as some types of crypto may be excluded. Or it may be excluded by definition, as in the case of NFTs. Since NFTs often reside on the blockchain, which is intangible, and therefore, can’t suffer physical loss or damage, they cannot trigger property claims on most commercial property insurance policies, for example.

The bitcoin, blockchain and crypto industry is also working on potential solutions, such as peer-to-peer networks, which use a decentralized model to outsource the pricing of the risk associated with these assets to a community. Such a solution creates what’s called a “prediction market.” Based on economic theory, people trading on the outcome of events can be used to forecast true probabilities. This helps solve insurers’ challenges of data inefficiencies and value volatility.

What You Can Do  

Most importantly, it’s critical to do your own due diligence before purchasing any digital asset. If you’re thinking about purchasing an NFT, for example, carefully check the details of the NFT, including its metadata, the URLs of the metadata, and the URLs of the JPEGs, and ensure you’re purchasing the NFT from a reputable seller or site. 

When it comes to insuring your digital assets, one of the smartest steps you can take right away is talking to your personal insurance advisor (which is different from your agent) or find one, and determine how, if, and when to insure your assets. Or, if they’re uninsurable, come up with a game plan with your insurance advisor on how to best manage your risk and preserve your wealth.

Want to learn more about insurance options for your digital assets? Contact the WTIA personal insurance team at insurance@washingtontechnology.org.