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Crypto Mining Insurance: Property & Liability

6 min read
March 20, 2024
Crypto Mining Insurance: Property & Liability

What is a crypto mining facility? 

The crypto mining industry is one of the fastest growing operations within the blockchain industry. It's essential to the infrastructure and will continue to grow as more people invest in this technology. A crypto mining facility, also known as a cryptocurrency mining farm or data center, is a physical location where large numbers of specialized computers, known as miners, are housed and operated to validate and process transactions on a blockchain network. Cryptocurrency mining involves solving complex mathematical problems in order to validate and secure transactions on a blockchain. Miners compete to solve these mathematical puzzles, and the first one to solve it is rewarded with newly minted coins as well as transaction fees.

These facilities require significant computational power, electricity, and cooling systems to operate efficiently. They often consist of rows or racks of powerful computers specifically designed for mining cryptocurrencies, such as Bitcoin or Ethereum. The location of these facilities is often chosen based on factors such as access to cheap electricity, favorable regulatory environment, and climate conditions that facilitate cooling to prevent overheating of the mining equipment.

Crypto mining facilities can vary widely in size, from small-scale operations run by individuals in their homes to large-scale industrial operations with thousands of mining rigs housed in dedicated warehouses or data centers.

What risks do they have?

As you can imagine, the largest exposure a crypto mining facility has is with the physical property - servers, computers, etc. Facilities can have millions of dollars worth of property that can be damaged or stolen. But they also face a list of additional risks that may be overlooked. Here's a list of scenarios that crypto mining facilities have:

  • Regulatory Risks: Some governments have restrictions on cryptocurrency mining operations due to major concerns about energy consumption, environmental impacts, and illegal activities.
  • Market Volatility: The market price of cryptocurrency, such as Bitcoin and Ethereum, can fluctuate significantly and impact the profit and losses of the business.
  • Operational Risk: Factors such as power outages, equipment failures, and cyber attacks can disrupt mining operations and place a hold on business income.
  • Cyber Security Risks: Crypto mining operations face a tremendous risk of cyber attacks due to their core operations being digital.
  • Property Risks: The buildings, business equipment, and other property like vehicles have a risks with weather, fires, theft, vandalism and more.
  • Worker Risks: Slip and falls, electrical malfunctions, and other physical scenarios that may occur within the facility put the workers at risk of injury.

Each operations is different, especially based on location, so it's best to speak with our insurance advisors to identify the likely scenarios that could affect your business. Get in touch with an advisor today at the link here.

What insurance do they need?

Cryptocurrency mining operations may require various types of insurance coverage to mitigate risks and protect against potential losses. Some common types of insurance that cryptocurrency mining operators may consider include:

  1. Property Insurance: Property insurance covers physical assets such as mining equipment, facilities, and infrastructure against risks such as fire, theft, vandalism, or natural disasters. This type of insurance can help miners recover the costs of repairing or replacing damaged or stolen equipment.
  2. Commercial General Liability Insurance: General Liability Insurance the business from third party injuries such as a customer or client slipping and falling inside the facility. It also can cover damage to the leased building and other property damage.
  3. Business Interruption Insurance: Business interruption insurance provides coverage for lost income and operating expenses in the event that mining operations are interrupted or temporarily shut down due to covered perils, such as equipment breakdowns, power outages, or property damage. It can help miners cover ongoing expenses and mitigate financial losses during downtime.
  4. Cyber Insurance: Cyber insurance offers protection against losses resulting from cybersecurity incidents, such as hacking attacks, data breaches, or malware infections. Given the increasing prevalence of cyber threats targeting cryptocurrency-related businesses, including mining operations, cyber insurance can help miners manage the financial and reputational consequences of security breaches.
  5. Professional Liability Insurance: Professional liability insurance, also known as errors and omissions (E&O) insurance, provides coverage for claims alleging negligence, errors, or omissions in professional services or advice provided by mining operators. This type of insurance may be relevant for mining operators offering consulting services or advice related to cryptocurrency mining.
  6. Environmental Liability Insurance: Environmental liability insurance covers liabilities and cleanup costs associated with pollution or environmental damage caused by mining operations. Given the environmental concerns surrounding cryptocurrency mining, particularly in terms of energy consumption and carbon emissions, environmental liability insurance can help miners manage potential risks and compliance obligations.
  7. Workers' Compensation Insurance: Workers' compensation insurance provides coverage for medical expenses, lost wages, and other benefits for employees who are injured or become ill while performing job-related duties. Mining operators with employees may be required by law to carry workers' compensation insurance to protect their workforce and comply with regulatory requirements.

The specific insurance needs of cryptocurrency mining operations may vary depending on factors such as the size and scale of operations, geographical location, regulatory environment, and risk profile. It's essential for mining operators to work with experienced insurance professionals to assess their unique risks and develop comprehensive insurance strategies tailored to their needs.

How much does insurance cost?

The cost of insurance depends on multiple factors such as the location, square feet, total annual revenue, total replacement value of property, and more. It's best to meet with an insurance advisor to discuss your specific operations. We included some ballpark pricing for each key line of insurance.

Commercial General Liability:

Premium Range: (depends on sales, square feet, location) $2,500 to $10,000 per year

Commercial Property:

Premium Range: (depends on total replacement value) $5,000 to $25,000 per year

Workers Compensation:

Premium Range: (depends on class of worker and total annual payroll) $2,000 to $15,000 per year

Business Interruption:

Premium Range: (depends on total annual revenue) $1,000 to $5,000 per year

Cyber Liability & Data Breach:

Premium Range: (depends on revenue, cyber security controls, and data stored): $2,000 to $10,000 per year

How do you get insurance?

The process to get insurance is an easy and straightforward process. You get us the information we need to engage insurance providers and we'll supply the best possible quote(s). We're also real people that probably live in your city, and we value relationships, so meeting in person is always an option. At the end of the day, our job as brokers and advisors is to educate you on what everything means. It also helps us to understand your business and insurance needs, so we can get underwriter comfortable with quoting. We'll help you understand insurance and risk management practices, and be there for you as the business grows.

Some traditional businesses can move through the process faster as a lot of underwriting is supported by artificial intelligence, but most policies today will be reviewed by an actual person. We have decades of experience working with the underwriters at each insurance company, and pitch your business to each of them. We work with and for you.

The standard process to produce quotes for your business is as follows:

  1. Advisor Introduction: this can be a quick phone call, email, video conference or in person meeting. You'll decide if you enjoy the advisor and trust their advice. This is also where you'll be able to ask questions, provide information about your operation, and go over the process to get insured.
  2. Data Collection & Underwriting: this is where you'll get into the fine details about underwriting questions and information that will be necessary to engage the insurance market. You'll be able to chose from filling out PDF's, going through our smart-form technology, or provide it all over the phone, email, or in person.
  3. Quote Proposal & Review: once your advisor has the information needed for underwriting, they will work with the insurance market to produce quotes. This can take a day or up to a week, depending on the time and operation.
  4. Finalize Coverage: here you'll decide the coverage to move forward with. Final steps include signed documents, payment, and selecting a specific start date.

ADIVSOR TIP: Be prepared to spend 5-10 minutes with your advisor to break the ice and get the ball rolling. Once aligned, your advisor will create clear next steps and create a timeline for quotes. If your business is new, and has unique risks, then you should expect a little back and forth.

Get in touch with your advisor, or send over the details digitally today.

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