--News Direct--
Insurance companies are more willing to offer errors and omissions coverage to registered investment advisors (RIAs) who seek protection for claims arising from cryptocurrency investments, as noted by a steep drop in premium costs, according to proprietary data from Golsan Scruggs, the corporate insurance brokerage firm serving the financial services industry.
Typically, the best barometer of how insurers view risk, premiums for E&O coverage related to digital asset insurance have dropped by roughly half in just a year.
“About a year ago, advisors who wanted to add cryptocurrencies to their clients’ portfolios often had to do so without the protection of insurance, since premiums were often prohibitive, assuming they could even find coverage,” said Brian Francetich, shareholder and director of Golsan Scruggs. “The environment has changed dramatically, and now RIAs can better mitigate their own risks if they feel their clients could benefit from increased exposure to the asset class.”
The drop in premium prices is driven by two primary factors. First, insurance companies believe that the regulatory environment is becoming clearer, with greater oversight from both the Securities and Exchange Commission and the Financial Industry Regulatory Authority, which regulate advisors’ use and communications around cryptocurrencies. Second, insurance companies are more comfortable with how these assets are custodied.
A third factor is advisors themselves.
“Most financial advisors have been cautious about adding cryptocurrencies, but it is clear that client demand has prompted the industry to do more diligence,” Francetich said. “Advisors are becoming more experienced in the asset class, and insurers have taken notice.”
Price drops come with some caveats. Insurance companies are more likely to offer coverage for portfolios where direct digital assets represent less than 10% of total assets under management. Also, not all crypto assets are treated alike. While areas like bitcoin and ethereum exposure are covered, other digital assets are often excluded.
Advisors seeking coverage should also demonstrate a strict compliance program surrounding these assets, including ADV disclosures, as well as presenting a general maximum allocation to digital assets for specific clients and not rolling it out to all clients regardless of risk tolerance. Advisors should also consider additional client disclosures where clients acknowledge the risk and volatility within the space.
Advisors must be prepared for a continued evolution in insurers’ thinking around digital assets in general.
“RIAs in particular should be talking with their insurance broker more frequently about the landscape around crypto, since it changes so quickly,” Francetich said. “What was true six months ago may not be true six months from now.”
ABOUT GOLSAN SCRUGGS
Golsan Scruggs is a corporate insurance brokerage firm serving the financial services industry. Our specialists operate throughout the United States and specialize in registered investment advisor (RIA), private equity/hedge fund, and mutual fund professional liability errors & omissions (E&O) insurance. As one of the largest insurers of RIA firms in the U.S., Golsan Scruggs employs a dedicated staff that understands the special risks of the financial services industry to achieve superior results, making the underwriting process painless.
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The material and information made available in this release or from our web site are for informational purposes only and not for the purpose of providing legal advice or insurance guidance. The application and impact of the issues can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, and the inherent hazards of the investment advisor’s fiduciary role, there may be omissions or inaccuracies in information contained within this report. While we have made every effort to ensure that the information contained within this report is reliable, Golsan Scruggs is not responsible for any errors or omissions, or for the results obtained from the analysis or use of this information. All information in this report is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Golsan Scruggs, its related partnerships or corporations, or the partners, agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this report, from our web site, or for any consequential, special or similar damages, even if advised of the possibility of such damages. It is incumbent upon the reader or user of the information to contact an attorney to obtain advice with respect to any particular question, issue or concern. Use of and access to this information or web site or any of the information contained within the site do not create a business relationship between the reader, user or browser.
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