Insurers today are more willing to offer errors and omissions (E&O) coverage to RIAs for cryptocurrency investments than they were just two years ago, according to proprietary data from Golsan Scruggs, an insurance broker serving the utilities industry financial. This is provided that RIAs have obtained certification from appropriate industry groups, such as DACFP or CDAA, and keep direct digital asset investments to no more than 10% of their total AUM.
Golsan Scruggs found that E&O insurance premiums for digital asset investments have been cut by about half since 2023 to $15,000 for a coverage limit of about $1 million. Just two years ago, in the first quarter of 2022, some insurance carriers stated that their first estimate for such coverage started at $50,000.
“The market is much more open now than it has ever been from an insurance carrier's standpoint and the ability to obtain coverage,” said Brian Francetich, director of GSRIA and managing underwriter with Golsan Scruggs. Francetich added that the firm is receiving calls from advisers investing in crypto on behalf of individual clients and those specializing in crypto strategies.
“We're finding more acceptance and the ability to get coverage for both of these customers,” he noted.
Golsan Scruggs executives attribute the trend toward lower insurance premiums and insurers' greater willingness to provide this protection to increased oversight by the SEC and FINRA and growing advisor interest in crypto assets. A survey released in May by the DACFP found half of the advisors she surveyed planned to recommend cryptocurrency investments to their customers within a year and another 35% planned to start doing so within six months. Advisors seem to be leaving investors behind when it comes to growing wealth in crypto assets. In the last one survey of financial advisors and retail investors published by Schwab Asset Management4% of retail investors with a moderate risk appetite were allocating a portion of their portfolio to crypto versus 0% of advisors.
“I sense a reluctance from the advisory community to do this,” Francetich said. “And the reason a lot of them are having fun is because their customers are saying, 'Hey, I'm already doing this, or I want you to do this, I want this capability. It's very individual driven by investors in many cases.”
Another development that boosted insurer sentiment for crypto insurance is that more traditional third-party custodians now offer these assets. In the firm's Q1 2024 survey, a majority of underwriters named Fidelity as the custodian they feel most comfortable with when it comes to crypto assets. In 2022, the signatories attempted to appoint a crypto custodian beyond Gemini.
Fidelity rolled out cryptocurrency options to individual investors in 2021 and began offering cryptocurrency in retirement accounts in April 2022.
Golsan Scruggs' data came from conversations with six insurance companies, plus his experience working with individual firms in the market.