A pan-African insurance firm, Old Mutual, has issued a statement saying that it will not insure equipment used in Bitcoin and crypto mining, citing the high expense, risk, and speculative nature of the sector.
A CoinDesk article detailing this news says that Old Mutual is only following the ban on insurance cover for mining rigs, especially because crypto is still considered a new asset class that has different risk profiles from other capital forms, and firms still have to work out the correct premiums to reflect those risks.
Bitcoin hash rate only finds less than a tenth of the total in Africa, and many believe that strict regulations, prohibitive power costs and jacked up prices for mining equipment are holding the continent back from growing in the space. And if miners can’t insure their rigs, then it becomes even more challenging.
Old Mutual, however, has done the research and claims to have reviewed many claims from clients incurring losses from crypto mining rigs. It has advised its branches to deny such businesses, also because of financial risks, according to Old Mutual insurance expert Christelle Colman:
“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 insurance firm also describes how high-cost equipment make up mining rigs, with specialized integrated circuit devices like ASICs running a risk of overloading computer CPUs and GPUs. This puts the businesses at a much higher risk of overheating and other dangers. Colman explained:
“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.”
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