Insurers’ Willingness to Offer E&O Coverage for RIAs on Cryptocurrency Investments

Insurers are increasingly open to providing errors and omissions (E&O) coverage to Registered Investment Advisors (RIAs) on cryptocurrency investments, as revealed by exclusive data from Golsan Scruggs, a leading insurance brokerage in the financial services industry. This shift indicates a more favorable stance from insurance carriers towards RIAs who have attained certification from prominent industry organizations like DACFP or CDAA and maintain direct digital asset investments below 10% of their total Assets Under Management (AUM).

Lower Premiums and Greater Acceptance

According to Golsan Scruggs, the premiums for E&O insurance related to digital asset investments have significantly decreased, with the average premium now standing at $15,000 for coverage of approximately $1 million. Just two years ago, during the first quarter of 2022, some insurers quoted starting figures as high as $50,000 for similar coverage.

“The insurance market has become far more accommodating than in previous years, both in terms of coverage availability and cost,” remarked Brian Francetich, Director of GSRIA and Managing Underwriter at Golsan Scruggs. He noted a notable increase in inquiries from advisors handling crypto investments for individual clients or specializing in crypto strategies, with a higher probability of obtaining coverage for such clients.

Insurance Landscape Shift

The evolving insurance landscape can be attributed to enhanced regulatory oversight from the SEC and FINRA, coupled with the mounting interest among advisors in cryptocurrency assets. A recent survey conducted by DACFP in May revealed that half of the surveyed advisors intended to recommend crypto investments to their clients within the next year, with another 35% planning to do so within six months. This growing advisor interest contrasts with Schwab Asset Management’s survey, which indicated that only 4% of retail investors with a moderate risk appetite allocated funds to crypto compared to none among advisors.

“Advisors, largely driven by client demands, are gradually exploring crypto investments, although some remain apprehensive,” noted Francetich.

Key Industry Developments

Moreover, traditional third-party custodians now offer cryptocurrency assets, impacting underwriters’ perceptions of crypto insurance. Notably, in Golsan Scruggs’ 2024 first-quarter survey, Fidelity emerged as the preferred custodian among insurance underwriters when it comes to crypto assets, marking a significant shift from the dominance of Gemini in 2022.

Fidelity’s introduction of cryptocurrency options for individual investors in 2021 and the inclusion of cryptocurrencies in retirement accounts since April 2022 have bolstered underwriters’ confidence in this space.

Conclusion

Golsan Scruggs’ insights, gathered from discussions with six insurance carriers and extensive market experience, underscore the changing dynamics of insurance coverage for RIAs venturing into the realm of cryptocurrency investments. With lower premiums, improved acceptance, and the availability of reputable custodians, the insurance landscape is evolving to meet the demands of a growing market.