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Aon designs policy form, outlines potential cryptocurrency exposures

Posted On: Mar. 28, 2018 2:09 PM CST

Aon designs policy form, outlines potential cryptocurrency exposures

Aon Risk Solutions, part of Aon P.L.C., has developed a policy form to protect against the loss of cryptocurrency along with other initiatives designed to meet the emerging risks posed by cryptocurrencies and digital ledger technologies.

In a report issued Wednesday on cryptocurrencies, blockchain and initial coin offerings, Aon outlines potential exposures associated with the new technologies and offers a range of solutions, from the new policy form to purposeful insurance portfolio review.

Cryptocurrencies pose a growing risk as more companies turn to the new medium for their own and client activities, according to Aon’s report.

“Two obvious risks related to these cryptocurrencies are cyber security and fraud/theft,” the report said, adding that traditional policies may not have specific language to cover cryptocurrencies.

“In recognition of the growing exposures and limitations, of traditional insurance, Aon has developed a policy form to protect against loss of cryptocurrency (bitcoin), which is unlikely to be covered by a traditional crime policy which typically limits coverage to tangible assets,” Aon said.

The broker said it has been working with companies involved in bitcoin to design the new form.

Blockchain, a type of distributed ledger technology, may offer an enterprise advantages including improved process efficiency and shorter time lines, the use of the new technology can expose a company to new risks.

In recognition of this, “Aon recommends an in-depth review of professional liability (errors & omissions) and cyber liability policies to avoid potentially significant gaps in coverage,” the report said.

Initial coin offerings raise capital through the sale of cryptocurrencies, much like initial public offerings do with stock.

The Aon report notes that Securities and Exchange Commission Chairman Jay Clayton said on Nov. 9, 2017, “I have yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security.”

As with securities litigation, “ICOs are subject to the vagaries of the plaintiff’s bar through investor litigation,” the Aon report said.

Insurance for such activities may be in short supply, Aon said. “D&O insurers do not have much of an appetite to provide management liability insurance for ICOs.”

The Aon report added, however, that “in certain cases, a limited product offering may be negotiated for D&O exposures associated with ICOs.”

Aon said it will continue addressing these emerging risks as the new technologies increasingly become a part of everyday life.

“The age of cryptocurrencies, blockchain and ICOs is upon us,” the report concludes.