Physical money has been a key feature of human development for almost 3,000 years. However, most recently we have seen the digital world intervene in the form of Bitcoin, Apple Pay and in June, the introduction of Libra – Facebook’s new virtual currency, one of the many cryptocurrencies.
Cryptocurrencies, also known as virtual currencies, run on blockchain technology. The transactions are stored across a network of computers, secured by sophisticated encryption methods. Interestingly, they steer away from governmental or bank controls.
A common question – what are we really insuring? It’s a brand-new asset to insure, not something as simple as a high value item. There is no loss history and only limited experience from brokers, insurers and reinsurers.
These cryptocurrencies also pose some threats. Not only does it present an overreliance on third party services, but also one cyber-attack or serious IT failure could endanger an entire online currency. In the past, we have seen hackers steal millions of dollars’ worth of cryptocurrency.
Therefore, the market has focused on insuring the physical elements of cryptocurrencies – the ‘cold storage’. This means that the value is downloaded onto private encrypted keys, stored in offline vaults, completely separate to the online world, making the loss of such keys as more quantifiable and therefore more insurable.
Despite the digital move, cash is still the most prevalent and circulated method of payment. Circulation of cash has in fact nearly doubled across Europe in the last decade. Niklas, General Manager of Marine here at HDI Global Specialty SE, suggests that it is very unlikely a cashless world will be upon us anytime soon. However, the creation of new currencies and payment methods may soon become the norm for the specie insurance market, so we must adapt quickly and it is important to understand the new exposures.
Read the full article for more insight from Niklas on what a world without cash means for specie insurers in Insurance Day here.