Crypto insurance is still a small market, even though digital assets are growing fast. One big reason is that there isn’t enough solid data on losses, which makes it hard for insurers to set fair prices or offer confident coverage. Alex Krasnow, a blockchain and web3 insurance expert at IMA Financial Group, explained that while traditional insurance fields like real estate have hundreds of years of data, crypto insurance has only about a decade to work with. This short history keeps many insurers from jumping in.
Because of this lack of data, insurers rely heavily on a deep understanding of the technology itself. Krasnow said the companies that succeed in crypto insurance are those who actually “read the code” behind blockchain projects. This helps them figure out how likely a claim is, although it doesn’t stop claims from happening altogether. In crypto, losses are expected to occur, so insurers must carefully check risks before offering policies.
Krasnow also warned against thinking insurance can cover everything. He stressed the importance of basic protections like real-time wallet monitoring and ways to block suspicious transactions before damage happens. Insurance should be seen as a backup, not the first line of defense. Policies work best when combined with strong controls and quick response plans.
Traditional insurers have felt pressure from their clients as more banks and asset managers get involved in on-chain activities. Krasnow believes this client demand will push big carriers to enter the space, whether they’re enthusiastic or not. Still, he said these companies need the right technical skills to compete with crypto-native players. The skills gap partly explains why insurance capacity remains limited and prices stay high.
Decentralized finance, or DeFi, is a clear example of the huge gap between on-chain assets and insurance coverage. Krasnow pointed out that out of $120 to $160 billion sitting in DeFi today, about 95 to 98 percent is uninsured. Some protocols may have cyber or tech errors and omissions policies for smart contract hacks, but these don’t typically cover the actual assets managed through the protocols.
There has been some progress, like a new, regulated DeFi insurance policy recently signed for a DeFi vault, but capacity is still tight. Insurers are focused on control measures like anomaly detection and continuous monitoring to decide what risks they can cover reasonably.
Krasnow highlighted a new niche forming around DeFi hedge funds. He mentioned they have created the first third-party crime insurance policy specifically for these funds to protect assets earning yield on third-party blockchains. This is part of a trend where insurers break down blockchain risks into parts they know well, building coverage step by step as data and controls improve.
Overall, the market is hampered by three main challenges: not enough loss data, uneven technical knowledge among underwriters, and mixed quality of security controls. Until insurers have better experience data, stronger code-level expertise, and more reliable defenses from customers, crypto insurance will continue to grow slowly rather than explode overnight.