In Virginia, a man recently woke up to a nightmare: his crypto wallet was emptied overnight. Desperate for reimbursement, he turned to his homeowner’s insurance policy, only to be denied by the court. According to the ruling, the loss of cryptocurrency did not constitute a “direct physical loss.” This ruling raised a question for crypto holders everywhere: If your digital assets vanish, which insurance, if any, actually protects you?
Answering this isn’t straightforward because crypto risks come in different flavors. Coverages provided by traditional insurance products — such as custody coverage for assets held by third parties, cold storage insurance for offline wallets, or hot wallet insurance for online accounts — typically apply to losses from theft or hacking incidents. However, losses caused by smart contract exploits or blockchain protocol breaches typically fall outside these traditional policies, prompting the rise of decentralized finance (DeFi) insurance, a specialized coverage explicitly designed for crypto-native risks like code vulnerabilities or protocol hacks. Yet, DeFi insurance introduces additional complexities, including cryptocurrency price volatility, liquidity constraints, and regulatory ambiguity, especially since premiums and claims are typically paid in cryptocurrency rather than fiat currency (government-issued currency, e.g., USD or EUR).
Today’s crypto insurance market clearly reflects these challenges. While interest and investments are growing steadily, the crypto insurance market is estimated to be roughly $1.9 billion in 2024, compared to the total crypto market valued at approximately $2.5 trillion. Traditional insurers and reinsurers, particularly those in London or Bermuda, have begun offering limited solutions for digital assets. Meanwhile, decentralized platforms like Nexus Mutual, where coverage decisions and claims are managed by community governance rather than corporate entities, introduce innovative coverage for crypto-specific risks but still grapple with limited capital, scalability, and evolving regulations.
What this means for actuaries:
Though crypto and crypto insurance have remained relatively esoteric, interest and investment in the market is growing rapidly. For actuaries, the emergence of crypto insurance presents a unique opportunity to help their organizations meet the demand and stay relevant in the digital era. To do so, it’s important to first understand the landscape and familiarize oneself with crypto-specific risks. Building fluency in topics such as blockchain, smart contract vulnerabilities, and crypto ecosystem dynamics is essential in building a crypto insurance product and accurately pricing the risks. ●
Sources:
https://law.justia.com/cases/federal/appellate-courts/ca4/23-1237/23-1237-2024-10-24.html
https://www.propertycasualty360.com/2025/03/25/how-insurance-plays-a-role-in-cryptocurrency-risks/
