Pan-African insurance company Old Mutual revealed it will not insure machines utilized for cryptocurrency mining, a statement published June 10 indicates. The firm mentions the risk, expense, and speculative nature of the industry.
Africa provides less than 10 percent of the overall hash rate of bitcoin. Many crypto mining enthusiasts believe costly electricity prices, strict regulations, and mining rig price tags are inhibiting it from emerging—a dilemma that will only get worse if miners cannot get protection on their equipment.
Old Mutual is not the first to ban insurance coverage for mining gears or price premiums outside the reach of many enthusiasts. Digital currencies are usually identified as an asset class with a different risk profile than other forms of capital and may have premiums that bear that risk.
After diligent study and an extensive review of claims from clients that have sustained losses to machines utilized for cryptocurrency mining, Old Mutual stated it has started telling its branches not to insure any companies or businesses dealing with the industry.
Old Mutual insurance expert Christelle Colman said, “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.”
The insurer said that cryptocurrency mining operations usually utilize expensive computers, servers, and other machines modified to run heavier application-specific integrated circuit devices that can strain the computer’s CPUs or graphic processing units. In addition, running computers round the clock brings 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 worried about the fluctuations and unregulated nature of the industry.
Although most insurers have announced they are not insuring mining equipment, Coinbase recently revealed that it has taken out $255 million for coins stored in hot wallets on behalf of their clients.