Insurers today are more willing to offer errors and omissions (E&O) coverage to RIAs on cryptocurrency investments than they were just two years ago, according to proprietary data from Golsan Scruggs, an insurance brokerage serving the financial services industry. That’s provided the RIAs have received certification from appropriate industry groups, such as DACFP or CDAA, and keep direct digital asset investments at no more than 10% of their total AUM.
Golsan Scruggs found that E&O insurance premiums for digital asset investments have decreased by about half since 2023 to $15,000 for a coverage limit of about $1 million on funds that are 100% dedicated to crypto strategy. Only two years ago, in the first quarter of 2022, some insurance carriers stated that their ballpark estimate for such coverage started at $50,000. For investment in funds where crypto makes up less 10% of the strategy, the premiums are much lower.
“The market is much more open now than it ever has been from an insurance carrier standpoint and ability to get coverage,” said Brian Francetich, director of GSRIA and managing underwriter with Golsan Scruggs. Francetich added the firm is getting calls from advisors investing in crypto on behalf of individual clients and those specializing in crypto strategies.
“We’re finding more acceptance and ability to get coverage for both of those clients,” he noted.
Golsan Scruggs executives attribute the trend toward lower insurance premiums and insurers’ greater willingness to offer this protection to greater oversight from the SEC and FINRA and advisors’ rising interest in crypto assets. A survey released in May by DACFP found half of the advisors it surveyed planned to recommend cryptocurrency investments to their clients within a year, and another 35% planned to start doing so within six months. Advisors seem to be trailing investors when it comes to bullishness on crypto assets. In a recent survey of financial advisors and retail investors released by Schwab Asset Management, 4% of retail investors with a moderate appetite for risk were allocating part of their portfolios to crypto vs. 0% of advisors.
“I feel a hesitation from the advisor community to do this,” said Francetich. “And the reason many of them are entertaining it is because their clients are saying: ‘Hey, I am already doing this, or I want you to do this, I want this capability. It’s very individual investor-driven in a lot of cases.”
Another development that pushed underwriters’ sentiment on crypto insurance is that more traditional third-party custodians now offer these assets. In the firm’s first quarter of 2024 survey, most insurance underwriters named Fidelity as the custodian they feel most comfortable with when it comes to crypto assets. In 2022, underwriters struggled to name a crypto custodian beyond Gemini.
Fidelity rolled out cryptocurrency options for individual investors in 2021 and started offering cryptocurrency in retirement accounts in April 2022.
Golsan Scruggs’ data came from conversations with six insurance carriers, plus its experience working with individual firms in the marketplace.
