On this episode of Crypto Bits, host David Shargel is doing a crossover event with Houston partner Vince Morgan, who is the host of the Bracewell Covered podcast.  They will discuss some intersections between crypto issues and insurance.

Historically, crypto risk has been considered by carriers as somewhat volatile to ensure. Why is that?

If you look back historically, insurance was oriented around insuring factories and boats and you know, tangible things. It's a little harder, I think, for insurance. There are many kinds of insurance on intangible things. Liability claims, for example, as one intellectual property insurance is another. And there are lots of ways that the insurance industry insures these kinds of things.

But crypto is kind of new. It's constantly evolving, and that makes it a little harder for them to make their actuarial models work as well. Just because of the way it looks six months ago might not be how it looks six months from today. And so that's a little more challenging for them. One of the other interesting things is some prominent players in the insurance space, like Berkshire Hathaway, Warren Buffett and Charlie Munger, who run that and also operate a bunch of insurance companies that have taken a very strong stance against crypto. And so, you don't have all those participants in the ones that are in this space. You are managing a pretty complex set of things and that means that's going to go a little slower as they want to make sure that they're going to do it right.

Is that resistance that you mentioned simply a product of the underwriting risk?

If the insurance companies feel like they can't understand the risk fully, then it makes it really hard for them to price it. It also makes it really hard for them to come up with terms to insure it. And part of it is, even if they have the appetite, they have to have a product that is priced at a point that the buying public will want to buy it.

And so, you can say I'll agree to insure anything for some astronomical price, and that covers the insurance side of it. But it could be that nobody's going to buy that product. And so, trying to make all this stuff fit together and be a working market takes time and is so hard to kind of generate from thin air.

Are there some startup carriers out there who are devoting themselves exclusively to crypto risk?  Have you seen that?

I think there are a few and I think you'll see more players keep coming into the space. I want to say one I think is avatars and there may be some others. I saw a report recently that there were six or eight carriers that really were trying to come up with a broad-based market offering here, and that number will probably grow over the next few years.

I had expected, you know, as crypto is kind of some of these flashy events you mentioned at the beginning, if that sort of settles down and it continues to develop in good ways, then I think you'll see more and more entrants into the marketplace.

What about policies or products that don't necessarily insure the actual loss?  Are you seeing any softening in terms of the availability for coverage for executives of crypto firms as it relates to litigation or investigations arising out of crypto firms’ products?

Yes, I think they face many of the same risks and some that are unique, but a lot of them are kind of the same. And I think there is a market for that because carriers are very familiar with that product. They probably may have less appetite for it. So maybe smaller limits than what you might get if you run a shoe factory, for example.

But I do think there is some coverage that's out there because the risks, again, are a lot of them are known kinds of things. And so, they can get their arms around that. They just might have less of an appetite for it.