The cryptocurrency market has grown massively with a recent market capitalisation high of $1 trillion. It is an increasingly popular investment tool – but with rewards come risks.

No exchange or agent trading in cryptocurrency is above the threats. Binance, one of the world’s largest cryptocurrency exchanges lost more than $40 million in crypto assets from a sophisticated attack using a mixture of phishing, viruses, and other attacks. They are not alone, since 2011 it is estimated that over $11 billion dollars has been stolen from exchanges by hackers.

What about insurance?
The market is in its infancy and many exchanges and agents have found it difficult to get cover. The typical challenges are a lack of capacity, appetite, restrictive cover, and cost. Add to that regulatory and territorial issues and it can leave firms in a position where they may not be able to trade at all. Underpinning all of this is a lack of knowledge about the risks and industry. This is why we have been working hard to educate markets and help tell your story.

The good news is that by framing the narrative correctly there is capacity out there and we have helped many clients find the solutions they need using a partnership approach.

“We act for the client. By working with them and taking a ground up approach, we can sell their risk into the insurance market.” Mark Robinson, Sales Director - North

The Top 3 covers you need
Many in the exchange business come from the Financial Services Industry and understand that the risks in the cryptocurrency world are similar and need to be approached in the same manner.

1. Crime – This can be internal as a result of dishonest or fraudulent acts of employees, or external criminals or a combination of both. Whatever the cause of the theft, burglary, or robbery – having cover in place can be huge business differentiator. It provides confidence to clients that the loss of cryptocurrency whilst stored in cold, warm or hot storage is protected.
2. Professional Indemnity – Business errors and omissions can and do happen. When they do, as with other financial services, protection is essential. In fact, in certain jurisdictions it is not possible to trade without proving cover is in place to the regulator.
3. Directors’ & Officers’ – linked to professional indemnity this can also be a regulatory requirement to trade in certain jurisdictions. Also, the premium can be lower than the alternative regulatory capital required. Claims against directors are on the increase and the cost of claims is rising. This has been driven by a combination of increased litigation, regulatory and bribery and corruption. As a result, having robust cover in place is essential whether your crypto business is a start-up, more established or needs to encourage non-executives to join the board.

Over $11 billion worth of cryptocurrencies has been stolen in exchange hacking since 2011

InsideBitcoins

Your story needs to be about Enterprise Risk Management
Any exchange that requires cover needs to look at their risk holistically to get the right terms and premium. Underwriters want to be confident that you understand your risks, take them seriously and are mitigating against them.

Having an Enterprise Risk Management (ERM) strategy is crucial in helping tell your story in this respect. At Verlingue we have a risk management team which specialises in helping clients put robust Risk Management Protocols (RMPs) in place to help clients secure the right insurance at the right price.

The market is relatively new in insurance terms, but cover is available with many of the wordings showing developments from existing products such as financial risks, cyber, crime and specie. For this reason, underwriters take a similar approach to cryptocurrency.

Hackers stole 7000 Bitcoins worth $40M from Binance one of the world’s largest exchange companies.

Binance
Physical – This applies to protection around sites with human security patrolling and protecting vaults where cold storage currency is held. In this respect it is similar to a specie policy. In respect of warm and hot storage, insurers require physical protection to be in place for servers and systems, similar to that which they would expect around any other cyber or digital risk.

Human – The internal threat from staff can be negligent or malicious. Either errors in process which allow hackers access, or actively working for cyber criminals. To mitigate against these requires strong vetting and checking of employees as well as education and training programmes on managing the dangers.

Reputation – Underwriters want to know that you have ‘skin in the game’ and have a desire to protect your brand.  Some firms have even gone as far as setting up hackathons with prize money in a bid to prove to clients and stakeholders how secure they are.

Over $4 Billion stolen from crypto crimes in 2019.
Forbes Magazine

Processes – a key pillar of Risk Management Protocols is the systems and processes that are in place and how they are stress tested. Everything from personnel to defence against financial crime – be that bribery and corruption or money-laundering to storage of private keys and auditable logging. Insurers are keen to see evidence of risk surveys – especially by legal counsel and third parties.

What next?
Our knowledge of the sector has enabled us to develop insurance solutions to protect your business against the main risks faced by this continually evolving sector – which have traditionally been hard to insure. If you would like to find out more about how we can help you with your cryptocurrency risks, please contact Mark Robinson, Corporate Insurance Expert Technology, FinTech & Crypto Specialist.
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Mark Robinson mark.robinson@verlingue.co.uk

by Jonatan Pinkse & René Bohnsack
What makes customers use green products in a truly sustainable way? Green product innovation aims to design products that deliver environmental benefits to customers, such as CO2 emission reductions, improved recyclability of products, and energy savings. However, would higher adoption of green products automatically lead to the realization of a product’s environmental benefits? This depends on how customers use the product.

Increasingly the problem is not that customers do not buy green products. It is to let them use these products in a sustainable way. A Tesla is not sustainable if you drive in the ludicrous mode from 0 to 60mph in 2.7 seconds, biodegradable plastics are only recycled if they are put in the right bin, or to make it very simple: tea drinkers admit that they overfill their kettle and waste loads of energy. For a green product innovation to be truly sustainable, we need to understand not only why consumers buy it but also what makes them use it sustainably. In our latest publication, we show that sustainable usage is an intricate result of three factors that interact: user experience, learning and so-called ‘sustainability affordances’. Now user experience and learning are probably clear, but what are affordances? Let’s dive in.

An ”affordance is a property or feature of an object which presents a prompt on what can be done with this object.” A button can be designed to look as if it needs to be turned or pushed. A doorknob prompts you to open a door. Affordances make life easier. They support our interaction with the physical and digital world. Applying affordances to sustainability shows how a product's green features can invite customers using it sustainably or discourage using it unsustainably. Sustainability affordances create possibilities to do new things with a product, have a unique user experience, or learn how to change behaviour, all with the aim to let customers behave more sustainably.

​So, what can we learn from applying the concept of affordances to green innovation? We provide three main insights:

1. What makes a green product ‘green’? Green products can provide various sustainability affordances – e.g., circularity, eco-efficiency, decarbonization, biodegradability, or organic production – which produce different environmental benefits such as lower carbon emissions or less water pollution. While some products’ sustainability affordances focus on one environmental benefit, others create multiple benefits. Instead of aimlessly trying to address as many environmental issues as possible, you should think about which issues your customers are most concerned about.
Highlight those environmental benefits in your product design and marketing campaign that speak to your customers. If people are worried about plastic ocean waste, stress the affordance of biodegradability. If they are worried more about the climate emergency, stress the affordance of decarbonisation. It would be best, of course, to design products that afford several environmental benefits. It lets you change your marketing campaign without having to change your product all the time.

2. What makes a green product ‘functional’ and ‘exciting’? Customers do not just buy a product because it is green. They want to use the product for a specific purpose. Unfortunately, green products are often seen as needing some form of compromise as they are not as functional as ‘regular’ products. A green product might not be a direct replacement for a regular product which creates a conflict for users between their normative goals (“I should be green”) and hedonic goals (“I want to enjoy life”). Being green is often harder but product design can influence that.
Don’t just focus on what a green product can’t do but highlight how it lets your customers do lots of exciting new things. Bundle green features with functional or aesthetic features. Part of the success of solar panels, for example, is their modularity. They let consumers generate electricity anywhere they want, affording unprecedented flexibility. Also think about how using a green product makes people feel. As Tesla and the Nest Thermostat have shown, green products with a great aesthetic design are more popular. But there is a risk that other ‘cool’ features will start to overshadow the green features. So how to keep the attention of customers focused on the ‘green’ as well? 

3. How can customers learn to use a green product sustainably? Green products have green features that afford environmental benefits. But it still depends on how customers use a product whether these benefits will be realized. We found that there is a trade-off between adoption of a product and sustainable use of the product. Having to change behaviour to use a green product can be demotivating because it ruins the user experience. So, to stimulate adoption a green product should be easy to use and not require much thinking. Right? When did you last read a product manual and consciously thought about how to use a product? What a hassle. But is this indeed the right way? It might help adoption. But, if adopting a green product is simple and doesn’t require behavioural change, customers will still not learn how to use it in a sustainable way. They just avoid making compromise at the expense of functionality.
​Firms need to carefully decide whether they want to stimulate a product’s adoption or a more sustainable use. Most firms opt for the former. However, we suggest that using green products should not be made too easy for customers, at least at first. This way, customers learn what the green product can or can’t do. They discover how using the product can lead to new types of applications and experiences and learn about different ways to behave more sustainably. You can support such learning by various techniques to ease the burden. You can think of using ‘wizards’ as is common in software and apps, designing gamification into the product, or providing little nudges such as putting the default setting to more sustainable use. In that case, users would have to actively decide against sustainable use … and who would want to do that.
Selling green product innovations is not easy. You should be aware that it is very difficult to predict why customers might like a new product. Green features might not make a product attractive on their own. But you can use product design and marketing to let customers discover for themselves how a green product can bring them delight. Think about what your green product ‘affords’ your customers and how it lets them do the same things more sustainably or discover doing new things altogether.
 
This blog post is based on our latest publication which is freely available:
Pinkse, J. & Bohnsack, R. (2021). Sustainable product innovation and changing consumer behavior: Sustainability affordances as triggers of adoption and usage. Business Strategy and the Environment. Early View.
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