FTX imploded back in November and there have been a number of developments since then. The effect of the crypto exchange’s collapse is still being felt by both users and companies in the space, and the most recent development shows that the contagion is far from over. This time around, it is insurance companies that are taking up the fight once more.
Insurers Avoid Firms With FTX Exposure
It is no longer a secret that a number of crypto firms lost funds when FTX collapsed. But now, even as these firms try to move forward, they are still haunted by the actions of Sam Bankman-Fried and the decline of its exchange.
In a Reuters article published in the early hours of Monday, it shows that insurers are reportedly turning away crypto firms based on their FTX exposure. For some such as Superscript, the broker for Lloyd’s of London, it comes down to how much of their assets a client had on the now-bankrupt crypto exchange.
Ben Davis, digital assets lead at Superscript, says that if a client has 40% of total assets on FTX that are currently inaccessible, “that is either going to be a decline or we’re going to put on an exclusion that limits cover for any claims arising out of their funds held on FTX.”
Lloyd’s of London and Bermuda insurance specialists also said that insurers now require clients that are crypto businesses to reveal their exposure to FTX. Additionally, insurers are reportedly giving clients a questionnaire to fill out to determine if they had invested in the defunct crypto exchange or had held any assets there, according to the president of Hugh Wood Canada, Kyle Nichols.
While some insurers have taken to provide an exclusion for clients with exposure in some cases, Relm, a crypto insurer, takes a more black-and-white stand. Co-founder Joe Ziolkowski said the crypto insurer would rather decline coverage than include a crypto or regulatory exclusion for a client.
Investors Want More Crypto Insurance
The cautious route being taken by insurance providers comes at a time when crypto investors are clamouring for more coverage. Just shortly after FTX had imploded, there had been a reported increase in requests for coverage.
One digital wallet, Liminal, had quickly moved to take out a $50 million insurance with Lloyd’s of London, while Arabian Business reported that other firms were looking to do the same, naming Canopius, Nexus Mutual and Zurich Arch as some of the prominent names in underwriting crypto risks for crypto companies. The demand for more coverage also shines through in a $14 million Series A funding for Evertas, a crypto insurance firm.
In its report, Reuters raises concerns regarding D&O policies which are for legal fees in case lawsuits are brought against directors and officers of a company. However, in a case such as FTX which is being charged with fraud, it is unclear if these policies will pay out. Ziolkowski also said that D&O insurance coverage may now be limited to only tens of millions of dollars for the broader crypto market, compared to the up to $1 billion coverage for cold wallet storage providers not connected to the internet.
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