November 19, 2021 | Professional Services Blogs
With the cryptocurrency market maturing, insurance companies in the U.S. and other countries have started allowing policyholders to pay premiums in cryptocurrencies.
In April, AXA Switzerland decided to allow its non-life category customers to pay insurance premiums with Bitcoin, making it the first multi-line insurance company to allow payments in cryptocurrencies.
Universal Fire and Casualty Insurance that insures small businesses has also started accepting cryptocurrency for premium payments. The Michigan-based insurer is accepting payments for direct online license, permit bonds, and additional surety bond products through a variety of cryptocurrencies such as Bitcoin, Ethereum, Bitcoin Cash, and Litecoin.
Some insurance companies have invested in NYDIG, a technology and financial services company that provides Bitcoin to institutions, private customers, and banks. Liberty Mutual, Starr, New York Life and MassMutual are some of its investors from the insurance sector. MassMutual with the help of NYDIG acquired $100 million worth of Bitcoin for its general investment account in December 2020.
Insurers perceive this as an opportunity to attract new customers, and even look at making claim payouts in cryptocurrencies.
In a recent survey by NYDIG, half of the respondents wanted to obtain insurance claims through Bitcoin and more than 75% showed interest in Bitcoin life insurance and annuities. Also, protection against exchange rate risk is pushing insurers to accept payments in crypto.
In recent months, investment fraud involving digital assets such as Bitcoin has risen since crypto vaults are vulnerable to hacking.
Phishing is another security threat.
Avast, a digital security company, said the U.S., Brazil and Nigeria are the main targets of this scam. The U.S. alone saw more than 80,000 cryptocurrency-related crimes in 2020.
The other risk associated with cryptocurrency is its adverse impact on the environment. The carbon footprint of Bitcoin mining is comparable to that of a large country. A recent study by the University of Cambridge found that Bitcoin’s yearly electricity consumption is more than that of Argentina.
Therefore, some governments have taken measures to restrict or prohibit the use of cryptocurrency in transactions. China has explicitly banned the use of cryptocurrency by financial institutions, such as for payment or billing insurance or other financial services.
Furthermore, cryptocurrency prices are highly unstable. Bitcoin prices have swung from a high of $62,986 on April 15 to a low of $30,822 on July 20 to again a new high of $67,554 on November 9.
Due to this volatility, insurance companies may not want to get hold of this currency until the exchange rate stabilizes.
Although there are uncertainties about how cryptocurrencies will evolve, more and more insurers have started to observe and recognize their benefits and are likely to find ways to mitigate risks. While some are avoiding cryptocurrency for now, others are investing in technology companies to help them offer better cryptocurrency payment options.
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