In the interview, Joseph shares insights on the challenges of underwriting in an emerging sector, the role of regulation, and how Relm is helping to build the data and capacity needed to support the growth of crypto and digital asset companies worldwide.
Watch the full conversation [14:23] and read the transcript for the key takeaways below.
“Insurance always lags behind innovation. But eventually that loss experience, that data, will present itself in the market and capacity will eventually come around.
We’ve been underwriting in this space now for six years across the entire digital asset ecosystem on a global basis, and we’ve been developing a dataset that enables us to move faster and smarter. As crypto becomes more mainstream, data becomes more available, and more capacity will eventually come into the market.
In any emerging sector, you’ve got a bunch of early-stage companies. Early-stage companies lack financial experience, lack a successful track record, and many are not yet profitable. You also have regulatory murkiness, or a lack of clarity, and if there’s a lack of clarity on the regulatory front, it brings a lot of variability and volatility.
You’ve got an asset class that props up the balance sheets of so many of these companies. Even if they’re running a great business, if the asset class itself evaporates, the viability of these companies goes out the window. So, when you combine a lack of track record with a lack of operating experience and maturity, and the volatility that comes with the asset class and the regulatory situation, it makes it a challenging underwriting space.
When you think about traditional insurance companies, they’re generating so much premium from industries that have all of those things — credibility, track records — so it makes it easy for traditional insurance companies to say no to crypto.
If you look at the P&C industry for the last 25 years, only 10 of those years were profitable from an underwriting standpoint. As Warren Buffett has always said, it’s about the float. Insurance companies traditionally in the P&C space are generating profits off of investment income.
When we look at the opportunities to underwrite companies operating in these new and emerging sectors, we’ve got to make sure that we’re underwriting profitable business. As the ability to underwrite profitably at scale becomes more apparent to the rest of the market, that’s potentially a tipping point where other companies will become more interested and start to see a return on that capital.
The idea of putting the insurance buyer directly with the insurance provider — insurance shouldn’t work that way. But as a global industry with a $6 trillion market cap, it’s heavily intermediated, and insurance capacity is kind of a tail wagging the dog. I think it makes sense, and I think it will eventually happen, but it’s still slow to gain traction, largely because there’s not a whole lot of regulation.”
