Non-life insurers in South Korea have rushed to introduce digital asset insurance products in anticipation of the Virtual Asset Users Protection Act, which takes effect today, Friday 19 July.
The act was originally enacted on 18 July 2023 and aims to safeguard virtual asset users. The new law mandates virtual asset businesses implement measures, such as the purchase of insurance or the accumulation of reserves, in order to meet liabilities and obligations in the event of incidents like cyberattacks or equipment failures.
Samsung Fire & Marine Insurance released a product on 12 July, with Beeblock, a minor crypto exchange, becoming its first policyholder under a one-year contract, according to a report from the Korea Times.
KB Insurance launched a product on Wednesday and other insurers, including Hyundai Marine & Fire Insurance and NongHyup Property & Casualty Insurance, are understood to be preparing to release their products in time for the new law.
However, due to the lack of specific digital asset-related products in the domestic market, insurers have faced challenges, including gathering historic loss data to effectively underwrite products.
The concern is not just confined to Korea. Traditional carriers throughout Asia Pacific have largely avoided insuring digital assets due to the high risks and complexities involved.
Cillin O’Flynn
General Partner at Noria CapitalThe volatility of cryptocurrencies, the difficulty in assessing and pricing risk, and high-profile failures, such as the collapse of FTX, have deterred most.
Speaking to (Re)in Asia in November, Cillin O’Flynn, General Partner at Noria Capital described the difficulties trying to price a digital asset product at a traditional carrier. “The experience [at Generali] was invaluable; I understood just how difficult it is to measure and manage the risk, and certainly how difficult it is to price the risk,” O’Flynn said.
“I quickly came to the conclusion that it doesn’t sit so well with a traditional insurance model,” he added.
To address the risk, Korean insurers have reportedly collaborated with Korean Re to develop products and set insurance premiums. However, the effectiveness of the pricing and underwriting of the country’s rapidly developed products remains to be seen.
Nonetheless, the country has seen higher demand as the Virtual Asset Users Protection Act drew closer.
“There have been many inquiries from virtual asset exchanges as they will be subject to fines if they do not enroll in insurance or accumulate reserves once the law takes effect,” an official from a major non-life insurer in Seoul told the Korea Times.
“We have yet to secure many subscribers, though. It seems the businesses still agonise over the two options — insurance or reserves,” the official added.
The official noted that accumulating reserves might need more funds, while businesses could enrol in insurance with about a tenth of that amount, suggesting smaller digital asset providers may prefer insurance.
“This is a totally new product, meaning that both insurers and virtual asset businesses lack experience and accumulated data,” Another official from a different insurer told the Korea Times. “At this point, it is difficult to predict what kind of accidents would occur and when.”
