Old Mutual, a legacy, pan-African insurance company, announced it will not insure equipment used for cryptocurrency mining, according to a statement released June 10. The company cites the expense, risk, and speculative nature of the industry.
Africa contributes less than 10 percent of the total bitcoin hash rate, according to Bitcoin Magazine. Many advocates for the fledgling industry think strict regulations, costly electricity prices, and mining rig price tags are preventing it from developing — a problem that will only get worse if miners cannot take out protection on their gear.
Old Mutual is not the first to ban coverage for mining equipment or price premiums outside the reach of many hobbyists. Cryptocurrencies are often considered an asset class with a different risk profile than other forms of capital, and may carry premiums that reflect that risk.
Following extensive research, as well as an in-depth review of claims from clients that have incurred losses to equipment used for cryptocurrency mining, Old Mutual said it has begun advising its branches not to insure any businesses involved with the industry.
“We have chosen not to provide cover for this type of risk as it is quite tricky to conduct a proper risk analysis of an unregulated fledgling industry that is already on the radar of financial authorities due to the unfortunate association with money laundering and cyber crime,” said Old Mutual insurance expert Christelle Colman.
The insurer notes crypto mining operations typically utilize high-cost computers, servers and other equipment modified to run heftier application-specific integrated circuit devices that can overload the computer’s central processing units or graphic processing units. Furthermore, running a system continually, which the company alleges is industry practice, introduces risks of overheating and other malfunctions.
“Even doing a comprehensive inventory of the insured equipment is difficult because the value of the highly modified computer equipment is typically inflated and almost impossible to verify as it is usually imported from obscure suppliers in the Far East,” said Colman.
Old Mutual is also concerned about the volatile, unregulated nature of the industry, which is often associated with speculative trading companies — prone to going bust — or worse, cyber crime.
Although insurers have come down on protecting mining equipment, CoinBase recently announced it has taken out $255 million for coins held in hot wallets on behalf of their customers — signaling willingness by insurance companies to enter other crypto sectors.