As social currencies like Libra and Gram develop, how will the insurtech industry have to adapt?
With Facebook embattled over its Libra project, will cryptocurrencies offer a safe and secure option for the unbanked?
The blockchain and cryptocurrencies have not been far from the news headlines over the last few years. Heralded as the logical evolution of money in our social media-dominated world, Facebook’s Libra has come under sustained attack from US regulators.
The aim of Libra and Telegram’s Gram digital wallet is to tap into the estimated 1.7 billion people in the world without a bank account. Both Facebook and Telegram by developing a cryptocurrency, hope to service this massive group of potential customers with innovative financial services that disrupt the established banking environment.
California Rep. Maxine Waters told Facebook founder Mark Zuckerberg in no uncertain terms: “I have come to the conclusion that it would be beneficial for all if Facebook concentrates on addressing its many existing deficiencies and failures before proceeding any further on the Libra project.”
Indeed, the Libra project as a whole seems to be on less than stable ground. In early October, five of the founding companies (eBay, Stripe, Visa, MasterCard and PayPal) withdrew from the project. Dante Disparte, the Libra Association’s head of policy and communication was bullish stating: “Although the makeup of the association members may grow and change over time, the design principle of Libra’s governance and technology, along with the open nature of this project ensures the Libra payment network will remain resilient.”
Are cryptocurrencies inevitable? The blockchain and the ideas behind the distributed ledger have been taking shape for the past few years. Having some form of digital currency that is linked to your social media account is for some a welcome innovation. However, for others, security and privacy issues have not been fully explained. Would anyone trust Facebook to manage their money transfers or purchases properly?
Is a new digital currency coming that could replace the dollar as the world’s reserve currency? Facebooks Libra is a clear alternative to Bitcoin, for instance, that has seen its value fluctuate wildly and, its overall security has been called into doubt. The European Commission is also looking closely at Libra and its possible anti-trust components.
For the insurtech industry, cryptocurrencies have been on the distant horizon, but are fast approaching. Indeed, some Insurers recently described cryptocurrency insurance as a “big opportunity.” The $500 million that was stolen from the Japanese cryptocurrency exchange Coincheck in January 2018 is an excellent example of potential new markets for insurtech products.
How insurers approach coverage for cryptocurrencies remains to be seen. With no historical data to base the calculation of premiums upon, insurtech service providers also have to take into consideration the often-violent swings in value a cryptocurrency can have. Lloyd’s has developed a set of risk factors for insurers, but other leading insurance vendors are still evaluating whether cryptocurrency insurance is a service they want to provide.
Cardiff-based Coincover founded by the Blockchain pioneer David Janczewski, has already launched an insurance product. Janczewski, co-said: “Cryptocurrency ownership is growing fast and becoming more mainstream, but it can still feel like a risky investment. Virtual currencies, by their very nature, are a new concept for many.
“Since the market launched in 2009, cryptocurrency has been associated with scandal, theft and black-market trading. Plus, we’ve all heard reports about people who have had their cryptocurrency wallets hacked or lost their investments due to hardware mishaps but with Coincover, we aim to make this a thing of the past.”
If cryptocurrencies do enter the marketplace, some form of insurance will be required. The unbanked who will be the initial group of consumers these currencies and their associated services will be aimed at, will want to be confident their money is safe.