As Tesla takes the plunge, wary insurers watch crypto craze from the sidelines

If Elon Musk’s Tesla wanted to insure all of its recent US$1.5 billion bitcoin investment against the myriad of pitfalls it could encounter, like hacks, theft and fraud, it would be out of luck.

FILE PHOTO: Representations of the Ripple, bitcoin, etherum and Litecoin virtual currencies are seen on a PC motherboard in this illustration picture, February 14, 2018. REUTERS/Dado Ruvic

REUTERS: If Elon Musk’s Tesla wanted to insure all of its recent US$1.5 billion bitcoin investment against the myriad of pitfalls it could encounter, like hacks, theft and fraud, it would be out of luck.

Insurers have yet to catch up with the growing acceptance of cryptocurrencies as an investment and in commerce: Musk said last month Tesla’s customers can now use bitcoin as payment.

Scant regulation and volatile prices of bitcoin and other cryptocurrencies make many insurers reluctant to underwrite the risks, despite booming demand for protection of digital assets and for personal liabilities of directors and executives of companies that deal with cryptocurrencies.

Insurers and brokers estimate that of the few that provide such insurance, none can offer coverage beyond US$750 million for any client.

Tesla did not respond to a Reuters request for comment.

The risks are considerable, with U.S.-based cyber security firm CipherTrace estimating reported losses from theft, hacks, and fraud totalling US$1.9 billion in 2020.

“Insurers have only a finite capacity that they can write in this space so it really is a case of getting in quickly,” said Ben Davis, lead for emerging technology and international insurance with Superscript, a Lloyd’s of London broker with cryptocurrency clients.

But while both crime and demand for protection have tracked cybercurrencies’ meteoric rise, underwriting such risks remains a niche business offered by specialist insurers in the Lloyd’s market and in Bermuda. Insurers who spoke to Reuters declined to be named while discussing such a sensitive business area.

The high risk of hacking means smaller companies seeking protection for their ‘hot wallets’ – digital assets stored online – can typically get just about US$10 million covered, with the largest limits rarely exceeding the US$100-200 million range, insurers and brokers said.

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