Bridging the Protection Gap in the Cryptocurrency Insurance Market

Bridging the Protection Gap in the Cryptocurrency Insurance Market

July 16, 2025

The crypto revolution is here — but who's protecting the revolutionaries?

Despite the cryptocurrency market soaring to an estimated $3.31 trillion, a staggering 89% of global crypto holders remain uninsured. In the U.S. alone, roughly 55 million Americans—about 16% of the population—actively use cryptocurrencies, yet only a sliver of them have insurance protection. This stark imbalance between widespread adoption and low insurance coverage presents a monumental opportunity for insurers, as detailed in a recent commentary by AM Best.

What are the Insurable Vulnerabilities of Crypto-Currency?

There are various types of crypto-currency coverage:

Custodial insurance: protects crypto-currency investors against loss as a result of hacking, theft, or loss of funds, due to the custodian’s failure.

Crypto-currency crime insurance: covers businesses and individuals against loss arising from “employee” crime-related events, for example, insider fraud or hacking.

Theft and hacking insurance: protects against the specific risk of loss of the crypto-currency as a result of theft of the asset held in exchanges or “cold wallets”, i.e., stored offline.

The Demand Is There — So Where’s the Supply?

According to GlobalData’s 2024 Emerging Trends Insurance Consumer Survey, just 11% of crypto holders globally have insurance. But 42% of the uninsured say they are ready to buy coverage, and another 26% are open to considering it. That adds up to two-thirds of the uninsured market expressing demand — a clear signal that the appetite is there.

Yet, as Edin Imsirovic, Director at AM Best, explains, “A limited number of traditional carriers currently write crypto coverage, often through surplus lines or specialty markets.” Why? The risks are complex and, to many insurers, still unfamiliar.

Insurers Face an Uncharted, High-Risk Landscape

The nature of cryptocurrencies introduces unique and daunting risks:

Cybersecurity and theft: Crypto wallets and exchanges remain prime targets for hackers with private keys frequently stolen or lost.

Volatility: Crypto assets like Bitcoin can swing wildly — experiencing gains of several thousand percent, then dropping over 80% in value.

Lack of data: With limited historical loss data and short claims history, actuaries find it difficult to price risk accurately.

Loss aggregation concerns: Insurers fear catastrophic events that could trigger correlated claims.

Regulatory ambiguity: With federal, state, and global crypto regulations still evolving, many insurers hesitate to engage with potentially non-compliant activities.

As a result, most carriers that do write crypto insurance offer low coverage limits and often operate within niche or surplus lines markets.

A Slow but Steady Shift: Insurers Begin to Engage

Despite the hesitations, there are signs of momentum. Lloyd’s of London syndicates—including Arch, Atrium, Beazley, and Canopius—have started underwriting crypto risks. Traditional giants like AXA, AIG, and Chubb are dipping their toes into the market. Marsh recently introduced a facility providing up to $825 million in insurance capacity for digital asset custodians and financial institutions.

These moves suggest that while the path is narrow and filled with risk, insurers are starting to build bridges into the crypto space.

Regulatory Shifts: A Potential Game-Changer

One of the most pivotal developments could come from the "Securities Clarity Act", introduced in March 2025. The bill proposes defining certain digital assets as “investment contract assets” rather than securities by default — a change that could reduce legal risk and open doors for insurers.

At the state level, jurisdictions like Wyoming and Vermont are leading the way:

Wyoming allows insurers to hold digital assets in their portfolios and recognizes DAOs (Decentralized Autonomous Organizations) as legal entities. Vermont, the top U.S. domicile for captive insurance, offers a regulatory sandbox and supports blockchain experimentation by insurance regulators. Texas and Florida, while not yet offering crypto-specific insurance frameworks, have become crypto-friendly hubs and could soon follow suit.

The Road Ahead: Risks, Rewards, and the Role of Insurers

The crypto insurance market remains in its infancy, marked by high risks, limited data, and regulatory fog. But the sheer size of the opportunity — with tens of millions of users and billions in uninsured value — makes it one of the most compelling frontiers in financial services today.

For insurers willing to innovate, invest in risk modeling, and collaborate with regulators and crypto firms, the payoff could be enormous. As the industry matures and regulatory clarity increases, insurance will play a vital role in legitimizing and protecting the next era of digital finance.

For additional guidance, please contact us.  Larson and Company has developed a suite of services specifically to serve the needs of companies of all sizes in a wide range of industries.