Crypto insurance remains a niche market despite the rapid growth of on-chain assets, as thin loss data and shallow technical underwriting continue to constrain capacity. Lack of reliable loss data still acts as the biggest brake on crypto insurance scaling.
Insurance Business speaks with Alex Krasnow (pictured), blockchain and web3 insurance advisor at IMA Financial Group, Inc., about the challenges facing crypto insurance and where he sees the market evolving.
“While they have 300-plus years of data in real estate or property insurance, we’ve got about 10 years of data at the max,” he said. “Data is the number one impediment.”
That short history limits pricing confidence, compresses terms, and keeps many carriers from even quoting.
In the absence of decades of loss history, the carriers that do move into the space increasingly rely on technical scrutiny rather than marketing claims.
“It comes down to deep technical understanding of the technology from a code level,” he said. The carriers taking share are “reading the code” and gauging “the likelihood of a claim.”
That stance does not eliminate losses, he said, but it narrows blind spots and aligns underwriters with the engineering posture of the teams they insure. “Claims are always going to happen,” he said, and in this segment the frequency and severity profile demand sharper pre-bind diligence.
Krasnow also pushes back against framing insurance as the primary line of defense. “If we want insurance to be the catch-all, we’re setting ourselves up for failure,” he said.
He points to basic pre-loss controls that, in his view, should be table stakes: “Are there real-time wallet monitors looking at these funds at all times?” he said. He further cites the value of controls that can “jump malicious blocks and move those funds out of this vault… before the fact,” he said.
“Insurance is the worst-case scenario protection,” he said, and he argues that policies work best when layered on top of measurable monitoring, transaction controls, and tested response playbooks.
As on-chain activity grows among mainstream financial institutions, Krasnow sees client pressure, rather than insurer enthusiasm, as the main force pulling traditional carriers into the market.
Asked whether traditional carriers or web3-native players are likely to shape the market, he points to that pressure. “They’re not going to have a choice in a few years,” he said of incumbents.
As banks and asset managers expand on-chain activities, “you need to be able to cover the on-chain liabilities that are becoming an increasing part of their exposure and their operations,” he said.
Many carriers are “taking submissions” and binding narrow, specific policies, he said, though he stresses that true competition depends on skill, not appetite. Until underwriting teams reach “the same deep technical understanding” as crypto-savvy players, “it’s going to be hard for them to offer any policies that are competitive,” he said.
That skills gap, he suggests, helps explain why capacity stays limited and pricing tight, even as more carriers dip a toe into the space.
Nowhere is the gap between on-chain activity and insurance coverage more visible than in decentralized finance.
Krasnow said the coverage gap in DeFi remains stark. “We’re seeing somewhere between $120 billion and $160 billion of assets sitting in DeFi today,” he said, and “about 95 to 98% of those are uninsured,” he said.
Protocols might carry cyber or tech E&O coverage for smart contract exploits, but those policies rarely link to assets under management, leaving most exposure uncovered.
He cites steps toward closing that gap, including “a new DeFi insurance policy that we bound recently,… the first regulated insurance for a DeFi vault,” he said, while noting that near-term capacity ceilings continue to constrain deployment.
Krasnow frames the underwriting lens as control-first. Persistent monitoring, anomaly detection, and pre-emptive transaction capabilities weigh heavily in reviews, he said, and become prerequisites for meaningful limits at workable pricing. Weak telemetry and unclear escalation push risks outside the market’s tolerance, he said, regardless of a protocol’s growth narrative.
For brokers and underwriters, he argues that the product architecture feels familiar even if the attack surface does not. “We put a cyber or tech E&O policy in place to cover a smart contract hack - tech E&O being technology failure,” he said. “This one is just specific to smart contracts and blockchain,” he said.
He presses intermediaries to focus on concrete systems, validate controls, and structure limits and retentions around real operating defenses rather than rosy assumptions.
Beyond protocol-level cover, Krasnow also points to a new niche aimed at funds as an example of how insurers are decomposing on-chain risk into more familiar pieces.
“We created what is the first third-party crime policy for DeFi hedge funds,” he said, to “insure their assets as they earn yield on third party blockchains,” he said.
He suggests more targeted instruments will follow as insurers break down discrete on-chain activities and map them to familiar perils, adding capacity piece by piece where controls and data support it.
For now, however, the market still revolves around three constraints: thin loss data, uneven technical literacy, and inconsistent control environments. Until carriers gain more credible experience data, build deeper code-level expertise, and see stronger real-time defenses from insureds, crypto insurance is likely to grow gradually rather than explosively.
