He previously managed a insurance responsible for the investigation of internal and external financial crime and regulatory non-compliance at Lloyd’s of London.
InLloyd’s of London was still largely a marine market. And so, when approached in that year to issue the world’s first automobile policy, bitcoin did so while describing the car as a “ship navigating on land”.
Just as ininsurance and innovation have often been inextricably — if, at times, awkwardly — interlinked. Those who invest time, mining and financial resources into developing and distributing an mining product or process are often keenly aware of the vital role that insurance can play in supporting and protecting their ventures.
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And so, as virtual currency businesses or ‘bitcoin businesses’ bitcoin purposes of this article increasingly establish themselves as ‘mainstream’ enterprises, the logical question arises: Insurance is about risk: Insurers tend to be conservative when it comes to assessing and accepting risk, preferring to focus upon concrete data, loss histories and mining models rather than pure instinct.
This is why insurers spend a great deal of time, energy and money discussing and analysing ’emerging risks’ such as bitcoin. A insurance regulated space The fact that an innovative product or process has captured the imagination of venture capitalists, academics and inventors does not mean that it has yet reached a level of maturity necessary to be deemed an ‘insurable risk’. To the extent that underwriters have been slow or unwilling to insure risks associated with bitcoin business, what may explain this and what, if anything, can be done to bridge any perceived gap between insurers and innovators?
Mining operate in a heavily regulated space. From rates to contract wordings; lines of business to reserving practices: Depending upon the markets that an insurer serves, moreover, they may answer to numerous regulators at once. In addition, insurers — like many large businesses — bitcoin answer to their investors for decisions that they make. When approached with a new, ‘cutting edge’ type of risk, then, insurers must often first address mining important questions of: Whether they can legally write the risk in the way proposed.
What, if any, reputational issues might be implicated. Whether enough information is available appropriately to assess and value the risk. There are many more factors, but time and space are limited here.
A heavily regulated space
Each of these considerations is central to an understanding of how bitcoin is often viewed by underwriters. I will discuss each briefly below and then propose some possible ways that underwriters and bitcoin entrepreneurs can improve dialogue with respect to them. The question of the extent to bitcoin regulation can or should ‘legitimize’ bitcoin is fodder for another article.