Dec 19 (Reuters) – Insurers are denying or limiting coverage to clients with exposure to failed cryptocurrency exchange FTX, which threatens digital currency traders and exchanges against hacking, theft, or Several market participants said they were not insured against litigation losses.
Insurers already reluctant to undertake policies to protect assets and directors and officers (D&O) of cryptocurrency companies due to poor market regulation and volatility in the price of Bitcoin and other cryptocurrencies was.
Well, concerns were amplified by the FTX collapse last month.
Lloyd’s of London (SOLYD.UL) and Bermuda insurance market experts are calling for more transparency from crypto companies about their exposure to FTX. The insurer is also proposing broad policy exclusions for any claims arising from its bankruptcy.
Kyle Nichols, president of brokerage Hugh Wood Canada, said insurers are asking clients to complete surveys asking whether they have invested in FTX or have assets on the exchange. .
Lloyd’s of London broker Superscript is offering FTX clients a mandatory survey to outline their exposure percentages, said Ben Davis, Superscript’s head of digital assets. .
“Let’s say a client has 40% of their total assets that are not accessible to FTX. This will be reduced or they will set exclusions that limit the coverage of claims arising from funds held on FTX,” he said. Told.
Exclusions to deny payment to claims arising from FTX bankruptcy are found in insurance policies covering the protection of digital assets and the personal liability of directors and officers of firms dealing in crypto, five insurance sources told Reuters. Told. Brokers say a couple of insurers are asking that anything related to FTX be excluded from their policies.
Exclusions could act as a failsafe for insurers and make it even more difficult for companies seeking coverage, insurers and brokers say.
Bermuda-based cryptocurrency insurance company Realm, which previously provided coverage to entities associated with FTX, has taken an even more rigorous approach.
“If we are required to include cryptocurrency exclusions or regulatory exclusions, we will not provide compensation,” said Joe Ziolkowski, co-founder of Realm.
D&O QUESTION
One of the most pressing questions right now, Ziolkowski said, is whether insurers will cover the D&O policies of other companies that have done business with FTX, given the issues facing FTX management. says Mr.
U.S. prosecutors have accused former FTX CEO Sam Bankman-Fried of misappropriating FTX customer deposits to pay costs and debts, and to finance his cryptocurrency hedge fund, Alameda. – Said it was involved in a plan to make an investment on behalf of Research LLC.
Bankman-Fried’s attorneys said Tuesday that his client is considering all legal options.
The D&O policy used to pay legal costs may not always pay in cases of fraud.
The insurer did not name any clients or potential clients that could be affected by the policy change, citing confidentiality. Crypto companies with financial exposure FTX includes cryptocurrency exchange Binance and cryptocurrency lender Genesis, both of which did not respond to emails seeking comment.
The least risky parts of the cryptocurrency market, such as companies with cold wallets that store assets on platforms that are not connected to the internet, could receive up to $1 billion in coverage, but D&O insurance policies Compensation for victims may currently be limited to tens of millions of dollars. The remaining market is the dollar, said Ziolkowski.
Insurers say the collapse of FTX will likely also lead to higher premium rates, especially in the US D&O market. Rates are already high due to perceived risks and the lack of historical data on cryptocurrency insurance losses.
A typical crime guarantee used to protect against losses resulting from criminal activity costs between $30,000 and $40,000 per million dollars in compensation for digital asset traders. That compares to a traditional stock trader’s cost of about $5,000 per million, says Hugh Wood Canada’s Nichols.
Reported by Noor Zainab Hussain of Bangalore and Carolyn Cohn of London. Edited by Lananh Nguyen and Anna Driver
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