After Exchange’s $3.1B Collapse, Insurers to Limit Coverage for FTX-Linked Firms

Insurers have started to deny or reduce coverage to clients exposed to FTX, the cryptocurrency exchange that collapsed in November this year and now owes more than $3 billion to its creditors. Moreover, insurance companies are proposing broad policy exclusions for any claims tied to the FTX debacle likely to safeguard themselves from further fallout.

Brokerage and Insurance Firms Asking Clients About Their FTX Exposure

The FTX contagion is showing no signs of stopping. Insurance firms now are denying or minimizing coverage to clients who are exposed to the fallen crypto exchange, according to a recent Reuters report.

The move leaves crypto traders and exchanges with no insurance, making them highly exposed to any potential hacks, frauds, or lawsuits, the report added. Even before the FTX collapse, insurance companies were hesitant about providing services to crypto firms due to sparse sector regulation and the high volatility of cryptocurrencies.

In the wake of FTX’s crash in November, specialists in the insurance markets, such as Lloyd’s of London and Bermuda, are asking crypto businesses for more transparency about their exposure to the now-bankrupt crypto exchange. Further, the insurance firms are also putting forward broad policy exclusions “for any claims arising from the company’s collapse,” the report noted.

Hugh Wood Canada president Kyle Nichols said insurance firms are urging clients to complete a questionnaire about their exposure to FTX. Similarly, Lloyd’s broker Superscript is giving its clients that have traded with FTX a mandatory questionnaire to provide the percentage of their exposure to the Sam Bankman-Fried’s exchange.

“Let’s say the client has 40% of their total assets at FTX that they can’t access, that is either going to be a decline or we’re going to put on an exclusion that limits cover for any claims arising out of their funds held on FTX.”

– Ben Davis, lead for digital assets at Superscript.

Insurers Proposing Broad Exclusions for Claims Arising From the FTX Fiasco

The exclusions denying payout for any claims stemming from the FTX implosion are a part of insurance policies meant to cover the protection of cryptocurrencies and personal liabilities of directors and company executives that deal in crypto, according to Reuters. One of the brokers said that several insurance companies have been proposing broad exclusions to policies for anything linked to the FTX crash. Such exclusions could provide better protection to insurers, whereas it would make it even more difficult for businesses seeking coverage.

CNBC reported last month that FTX owes its top 50 creditors more than $3 billion. The top two largest creditors are owed $226 million and $203 million, respectively.

FTX’s founder and former CEO, Sam Bankman-Fried, was arrested and charged last week. Early reports suggest that the 30-year-old could face up to 115 years in prison.

This article originally appeared on The Tokenist

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