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Expanding NFT market creates new insurance challenges

 

Expanding NFT market creates new insurance challenges

The market in Non-fungible Tokens (NFT) is expected to reach £27billion ($35 billion) in net sales in 2022.

The majority of NFTs purchases are in art, gaming, metaverse and other blockchain-based collectibles and if the current growth rate continues the market could be worth £61 billion ($80 billion) by 2025.

As a result of this market, there has been a corresponding increase in inquiries about NFT insurance. However, the nature of NFTs and their intangibility means the insurance industry is having to develop new types of coverages specifically tailored to the risks associated with NFTs.

Many insurers have been hesitant to insure digital assets because of a lack of data and, as a consequence, pricing the risk is difficult.

The cryptographic assets have unique identification codes and metadata that distinguish them from one another. Unlike cryptocurrencies, it is a unique token that cannot be imitated or changed. NFTs are built on blockchain technology and are connected to a decentralised historical record that allows for the provenance of a digital file to be established.

One concerning aspect of the market is that NFT scams are becoming more noticeable with increased ownership and the sophistication of technology making it easier for scammers to target investors.

 Cyber insurance is seen as one option to provide protection against risks which may occur in the digital age, such as data breaches or malicious cyber hacks on computer systems. NFT insurances could be classified under cyber insurance.

Some experts believe NFTs may be subject to insurance policy in two different ways, crime insurance and damage insurance. While the damage insurance provides coverage for damages caused by intervention on the blockchain; crime insurance provides coverage against crime such as theft or damage to property, or for fraudulent activities such as a third party placing a fake product in the NFT marketplaces.

 

To discuss this further with an expert at W Denis, please contact: Daniel.moss@wdenis.co.uk or on 0044 (0)113 2439812

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