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With the increasing risk of contagion, insurers avoid FTX-linked cryptocurrency enterprises

According to multiple market players, insurers are refusing or restricting coverage to clients who have exposure to the insolvent crypto exchange FTX, leaving traders and exchanges of digital currencies uninsured for any losses from hacks, theft, or legal actions.

Due to the lack of market regulation and the unstable pricing of Bitcoin and other cryptocurrencies, insurers were previously hesitant to underwrite asset and directors and officers (D&O) protection insurance for cryptocurrency enterprises.

Now, worries have increased as a result of FTX’s collapse last month.

Specialists in the Bermuda and Lloyd’s of London insurance markets are demanding more openness from cryptocurrency companies on their exposure to FTX. Additionally, the insurers are recommending extensive policy exclusions for any claims brought about by the company’s demise.

Insurers are requesting clients to answer questions about whether they have assets listed on the exchange or invested in FTX.

According to Ben Davis, lead for digital assets at Lloyd’s of London broker Superscript, clients who transacted with FTX are required to complete a questionnaire outlining the percentage of their exposure.

If a client can’t access 40% of their total assets stored by FTX, that will either be a decline or we’re going to put on an exclusion that limits protection for any claims coming out of their monies held on FTX.

According to five insurance sources, the insurance policies that cover the protection of digital assets and the personal liability of directors and officials of organizations that deal in cryptocurrencies have exclusions that refuse payment for any claims resulting from the FTX bankruptcy. According to a broker, a few insurers have been pushing for plans to include a broad exclusion for everything connected to FTX.

Exclusions may serve as a failsafe for insurers and will make obtaining coverage even more challenging for businesses, according to insurers and brokers. 

Even more stringent guidelines are used by Bermuda-based cryptocurrency insurance Relm, which has previously given coverage to organizations connected to FTX. Therefore coverage is not provided to FTX-linked cryptocurrency enterprises.

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