Crypto Mining Equipment Will Not Be Insured by Old Mutual Due to Absence of Legal Clarity
- Old Mutual does not want to insure companies that engage in crypto mining.
- Coinbase has created a fund in a hot wallet to provide support to current customers.
Main Factors Keeping Crypto Industry from Growing
Cryptocurrency is an industry that is still expanding across the globe, though crypto mining has not quite caught up to the hype in every area. The process consumes a high amount of energy, and there are some companies that have already insured the devices, but Old Mutual will not be.
The legacy, pan-African insurance company has released a statement on June 10th, saying that the cost, risk, and speculation of the market has led them to decide against insuring mining devices for cryptocurrency. Bitcoin Magazine reports that Africa only accounts for under 10% of the total Bitcoin hash rate.
There are plenty of proponents of cryptocurrency that believe that strict regulations, high electricity prices, and the price tags on mining rigs are keeping the market from expanding. However, without the right protections in place for the gear used in the mining sector, it will be incredibly difficult to solve these issues.
Along with Old Mutual, there are many other companies that have decided to ban coverage for users of mining equipment. Cryptocurrency has an incredibly unique risk profile that other asset classes to not, and carrying that risk comes at a substantial premium.
To come their decision, the company went through a lot of research first, along with evaluating claims from clients that have endured losses related to cryptocurrency mining equipment.
As a result, Old Mutual stated that it has advised branches not to insure branches with connections to the cryptocurrency industry. Christelle Colman, an insurance expert with Old Mutual, said:
“We have chosen not to provide cover for this type of risk as it is quite tricky to conduct a proper risk analysis of an unregulated fledgling industry that is already on the radar of financial authorities due to the unfortunate association with money laundering and cyber crime.”
Speaking about the current protocols involved with the industry, Old Mutual pointed out that the mining often requires the use of high-cost computers, along with servers and other equipment that is modified to run the proper applications.
Making the process even riskier, mining often requires that users keep their systems running as much as possible, sometimes around the clock, which means that overheating and other malfunctions could happen.
Colman added, “Even doing a comprehensive inventory of the insured equipment is difficult because the value of the highly modified computer equipment is typically inflated and almost impossible to verify as it is usually imported from obscure suppliers in the Far East.”
Current Issues With Cryptographic Assets
The statement for Old Mutual also explained that the company is concerned about the volatility that naturally exists in the market.
While cryptocurrency has worked to manage this issue, it also often occurs in speculating trading companies or even cybercrime, and the insurance company is not about to provide protection for a company that could be engaged in these unsavory activities.
There have been many companies that have resisted protecting mining equipment, but Coinbase stated that they have already pulled aside $255 million in an effort to create a separate fun for their customers.
According to CoinDesk, these actions are clearly an effort to show that Coinbase believes in insuring these efforts, hopefully paving the way for other insurance companies to step up.