‘Can a disruptive technology like Bitcoin ever be insured,’ wonders Innovative Insurance Group President Ty Sagalow.
In one of his recent blogposts, the insurance veteran referred to Bitcoin as “a new risk in the technology space”, saying that the insurance industry will have to create new underwriting techniques and protocols if it wants to cater to the digital payment industry. To make things more clear, he exemplified the famous “Y2K crisis” in the late 90s that had insurance industry writing new rules for insuring technology.
“So we created “Y2K insurance” and made it available only to those companies that took the right steps,” Sagalow stated.
The clock has now turned 360-degree and the insurance sector is faced with yet another dilemma in the name of Bitcoin — a gradually erupting payment technology that has often been associated with a dozen online risks. Like the Y2K crisis, the insurance industry is unfamiliar with the risks they need to insure when it comes to digital currencies. As Sagalow asserts, they have no historical information about Bitcoin’s severity of loss, as they have in the case of automobiles. Therefore, it is a really challenging task for them to determine a right premium for the risks this new technology brings with itself.
Treating Bitcoin Cold Wallets Like Bank Vaults
To simplify the complexity, Sagalow proposed to treat Bitcoin’s private key as an electronic file which, according to the existing practices, could be insured within the scope of network security space. He further extended the concept by comparing the storage of these private keys in a cold wallet to storing valuables in bank vaults. As the latter’s risks are well understood and therefore, insured, there can also be a theft insurance policy for Bitcoins stored in offline cold wallets.
The question however is, will the insurance industry be ready to insure Bitcoin? Its a dilemma in the end that will be resolved once the digital currency gains more adoption by industrialists and consumers.