(BlockBar) Pan-African insurance company, an old mutual legacy, announced it will not insure equipment used for cryptocurrency mining. The company cites the risk, expense, and speculative nature of the industry. According to Bitcoin Magazine, less than 10 percent of the total bitcoin hash rate is contributed by Africa. Many advocates for the fledgling industry think strict regulations, costly electricity prices, and mining rig price tags are preventing it from developing.
One of the reasons for such action is that cryptocurrencies are often considered an asset class with a different risk profile than other forms of capital. So, old Mutual is not the first to ban coverage for mining equipment outside the reach of many hobbyists. Old Mutual has started advising its branches also to not insure any businesses involved with the industry. This was being said after 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 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.”
Crypto mining operations typically utilize high-cost computers and other equipment modified to run heftier application-specific integrated circuit devices. The insurer notes that this can overload the computer’s central processing units or graphics processing units. According to Colman “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.”
Old Mutual is also concerned about the unregulated and volatile nature of the industry. This is often associated with speculative trading companies prone to going bust. When so many insurers have come down on protecting mining equipment, CoinBase recently announced that it has taken out $255 million for coins held in hot wallets on behalf of their customers. This is a green signal and willingness by insurance companies to enter other crypto sectors.
Mayan MV is a passionate writer and cryptocurrency enthusiast. He currently serves as marketing strategist and contributor at BlockBar, based in Singapore. Mayan has started his career in blockchain technology about five years ago, and he has also written over a hundred articles that span across various fields.