It may still be “nascent” but cryptocurrency, and its related technologies, is already “one of the top risks in most insurance companies’ risk portfolios”, according to Lorie Graham, senior vice president and chief risk officer at property and casualty reinsurer AmericanAg.
In an exclusive interview with Intelligent Insurer Graham, who oversees the corporate enterprise risk management programme and the research and product development function at the reinsurer, discussed cryptocurrency insurance, and what it means for re/insurers.
In her role, Graham identifies emerging risks and considers the opportunities, so cryptocurrency, its adoption, and subsequent impact on the reinsurer is something she and her colleagues have been looking at for quite some time.
“From our view, and the view of the majority of the industry, crypto is still relatively nascent,” Graham said.
“There’s been some movement towards crypto transactions such as smart contracts and the industry is slowly responding with insurance products for cryptocurrency assets.”
Smart contracts, which allow a predefined response to predefined events, are part of the blockchain and the insurance industry is considering the evolving options around this, she explained.
“Currently, predefined contracts are more of a simple ‘if x, then y’, so if x happens, then the cryptocurrency will be paid. But with all the additional technology that’s available, and the future integration of big data, artificial intelligence, sensors on machinery and cars, and machine learning, we’ll be developing how these transactions can be more complex, with multiple triggers and decisions being made automatically.”
There are already examples of contracts of this type in the insurance industry. Graham highlighted Lloyd’s parametric programme JumpStart, which provides earthquake coverage in Canada.
“Just when we think we have our finger on the pulse of what’s going on in crypto, or cyber in general, it changes.” Lorie Graham, AmericanAgDigital demand drivers
The COVID-19 pandemic ushered in the wider adoption of technology in society and with it a greater acceptance of, and comfort with, digital payments.
Graham said: “If we’re talking about consumers—what they need, why they’re demanding it, and why we need to respond to that—digitisation of assets is becoming more common.”
Property transactions are happening in the blockchain today, she added, which have “unique insurance needs” and the industry is looking for ways to respond to that.
“There’s a big need for trust in our industry and crypto provides a single version of the truth in blockchain and for insurers there’s an opportunity for fraud prevention.”
Graham highlighted the efficiencies that this type of digitisation can offer as another “big benefit” for consumers and insurers.
“Efficiencies have been determined in the claims management process and on underwriting automation, and policyholders can get quicker payments. Insurers are also seeking ways to enhance customer engagement, so through applications and solutions like this we can engage with them in different ways.”
Crypto risk landscape
As to how cryptocurrency insurance is changing the risk landscape, Graham said: “It’s a pretty common risk, it’s one of the top risks in most insurance companies risk portfolios and it’s a new technology, but there’s a lot of uncertainty.
“We have uncertain regulatory status, there’s no clear framework in the US and the Federal Deposit Insurance Corporation is providing guidance to us but it doesn’t protect cryptocurrency. …….