Words of wisdom from our business insurance experts.
Blockchain Insurance: Today's environment, misconceptions, and coverage
Blockchain and the Insurance Industry as We Know it Today
There’s a misconception around blockchain technology, and the risk management strategies that should be in place to prevent major loss scenarios.
Blockchain as we know it today, as of 2022, is a new and very complex concept. The word came about, because of cryptocurrency and bitcoin. It is associated with transacting financial and personal information.
At its core, blockchain is a platform that allows the exchange of information or data - on a decentralized chain of “blocks”. This technique digitally timestamps documents, so they are difficult to backdate or alter. Its purpose is to also solve the double record problem without the need of a central server (i.e., a bank or institution). Once data is recorded inside a blockchain, it is very difficult to change it.
For example, blockchain is the ledger that keeps track of who owns the digital tokens, known as bitcoin. Therefore, you can't have bitcoin without blockchain, but you can have blockchain without bitcoin.
In addition to financial information, it can be used to securely store information such as property, contracts, art, media, and other non-financial data – without requiring a third-party intermediary, like a bank or government.
With the fast-growing industry of direct-to-insurance options available to customers, and traditional insurance brokers who do not understand the industry, there is more room for gaps in coverage and misrepresentation. These factors ultimately create a greater chance of claims being uncovered and a business being completely exposed.
Our goal at Fullsteam Insurance to help educate business owners and key decision makers about the insurance market. Our team of expert insurance advisors will clear up misconceptions regarding insurance policies, clarify loss mitigation strategies, and identify clear steps on how to set up an insurance program to protect your business.
New worlds create new problems.
Insurance carriers are in the business of collecting premiums and in return, underwrite contracts that pay out, and defend a business if a covered loss occurs. They have a duty to understand the risk they are covering and typically lean on historical data or actuarial analysis of the industry. If they do not understand the risk or do not have data to confidently underwrite it, they will not offer insurance.
Overall, there’s a level of uncertainty with the insurance market and risks associated with blockchain, the technology, and the applications it’s used for.
The good news for anyone seeking insurance for their blockchain business – there are insurance products available to cover the risks associated with their operation.
Unfortunately, a fair amount people assume if they have an insurance policy, everything is covered in the event of a loss. The reality is an insurance policy only provides coverage to items specifically underwritten, which factor in exclusions, and material facts that are included in the process before the policy is bound (i.e., the application and details provided about the operation during underwriting).
As the blockchain industry continues to be ever evolving, it’s vital for business owners and key decision makers to understand the process and parameters required to effectively insure their business. Furthermore, with the introduction of new direct-to-customer insurtech solutions and traditional + generalist brokerages, it’s paramount to work with a specialized advisor to properly cover your business.
This brings us to the core of the misconception – a demand for insurance by blockchain businesses, a lack of confident insurers, direct-to-customer insurtech, and under-educated insurance brokers/agents.
You deserve better.
At Fullsteam Insurance, we believe the relationship between specialized insurance brokers and the customer is more important than ever. Businesses utilizing blockchain technology deserve an insurance advisor and risk management team that understand the technology, their operations, the evolving insurance market, and are equipped with resources to make the experience easy and secure.
The process to underwrite a quality insurance package for a tech company requires an in-depth analysis of the people, operations, and loss prevention strategies (among other things relevant to each line of coverage). To build the confidence of key insurance carriers, the broker-to-client relationship must be transparent and flexible to ensure the policy is underwritten correctly and backed by a credible insurance company.
There are currently a limited number of insurers that provide adequate coverage depending on the insurance policy. The uncertainty around the technology has prevented most well-known insurance carriers from offering key coverage like errors and omissions, cyber liability, data breach and directors’ and officers’ insurance. Approval for these coverages require a list of safeguards – our insurance experts have sourced underwriting parameters from key insurance companies offering coverage today and listed them below:
- Sub-Contractor Relationship: Carriers are going to want to confirm you review and verify your sub-contractors carry their own errors and omissions insurance.
- Contractual Risk Management and Customer Support: Carriers will require confirmation and written detail about your customer contracts, quality control, and customer support programs.
- IT Operations, Privacy and Security: Carriers will require details regarding third-party information, system security, data storage, sensitive records, accessibility to data, privacy policies, compliance, and IT risk management procedures and controls.
- Content and Intellectual Property: Carriers consider the profitability of the patented item, initial capital investment, existing licenses, suspicion of infringement, and request from third parties that they receive a license. For example, knowingly using a logo for commercial products without the consent or authorization from the company who owns the logo.
- Company Financials and Ownership: Carries will require access to balance sheets, profit and loss statements, and capital tables.
Build the best portfolio and protect your assets.
As one would assume, every business is different and comes with exposures that may be inconsistent to their competition. An insurance advisor has a duty to recommend key coverage and develop a plan to cover all angles of the business.
Below is a list of coverage considerations that every blockchain company should be thinking about:
Protects the business from third-party property damage and bodily injury claims. For example, a customer or client's medical expenses if they slip and fall in your business
Covers office equipment, furniture, electronic processing, and other property used for the business. For example, your office burns down, and you need to replace business property.
Business Auto Liability
Safeguards hired, non-owned, and owned automobile insurance. For example, your company owned, or employee-owned vehicles are involved in a car accident
Cyber Liability and Data Breach
Covers monetary losses from a breach and provides legal protection. For example, a hacker breaches your systems and steals company funds.
Errors and Omissions
Type of professional liability insurance that protects against claims of inadequate work or negligent actions. For example, breach of contract between a company and a freelance employee who does not meet their contractual obligation.
Provides medical benefits to employees injured in the course of employment. For example, your employee slips on the office floor and breaks their arm.
Directors and Officers
Protects the personal assets of directors, officers, and other key people the organization is sued. For example, a C-suite executive at a company failed to disclose material facts and provided inaccurate and misleading information to their investors.
Employment Practices Liability
Covers wrongful acts arising from the employment process and workplace conduct such as wrongful termination, discrimination, and sexual harassment. For example, wrongful termination or false representations.
Key Man Insurance
Covers the life of one of the company’s employees. It’s intended to help the company recover from the loss of an employee that contributes significantly to the business. For example, the loss of the employee could trigger a reduction in existing or new business.
ADVISOR TIP: Insurance is not a one-size-fits-all kind of thing (though we wish it was as it would make our job easier). With any emerging industry, especially one that has new financial capabilities, there's a process to get insurance providers comfortable. You should expect to have multiple meetings with your advisor and underwriting team, so the can ensure the business is covered properly.
Fullsteam Insurance is the insurance brokerage that will safeguard your business with an insurance policy you can trust. Our team of insurance experts understand blockchain technology and are equipped with the resources to make your experience easy and secure when building and implementing your policy.
Discover your trusted source for insurance policies with the broadest coverage and competitive pricing that shield your business from liability. At Fullsteam Insurance we are proactive and always secure insurance policies for when you need them most. Get in touch with an advisor today and learn more about how we can be your partner.