August 24, 2018 by Jason Contant
Given that “there are no 10-year-old blockchain companies” in an industry that relies heavily on historical data, how do insurers assess a submission for insurance related to the distributed ledger?
Just like you would for any type of “traditional insurance”: by focusing on the experience and quality of the company’s management, said Christopher Liu, head of financial institutions (cyber) at AIG, during a webinar last week. However, what would otherwise normally be a “red flag” on the underwriting side (less than 10 years of operations) is the norm for blockchain companies.
When considering a submission for directors and officers (D&O) insurance for blockchain (or other lines, such as financial crime or cyber insurance), it’s important to look at the “diverse and technical participants” in management. “What we look for in a D&O placement is really the quality of the management and that is really all you have to go on: where they come from, what their experience is, what they’re bringing to that particular operation and what’s their philosophy on how they expect the company to go forward,” Liu said during the webinar Cryptocurrency & Blockchain Insurance: New Exposures and New Insurance Needs.
Blockchain is a record of digital events that is “distributed” or shared between many different parties; it can only be updated by consensus of a majority of the participants in the system.
In tailoring a policy for blockchain, it’s also important to ensure the policy language “matches up to what the company is actually doing if they have digital currency assets, including wallets, and public and private keys,” Liu said. “They need to make sure all those terms are referred to and mentioned within the insurance policy, whether it’s under loss or property or the coverage triggers within the policy.”
This can be gleaned from interviews and conversations with management around their particular approach to the technology, where they see themselves fitting within the supply chain, and then to “go from there.”