In the third part of a series on Bitcoins, Ty Sagalow, President of the Innovation Insurance Group discusses “What’s News in Insurance” and how the peer-to-peer payment system has become more legitimate, if not more secure.

Recently, the U.S. Marshals Office auctioned 30,000 Bitcoins that were forfeited by Silkroad, one of the original Bitcoin companies allegedly involved in illegal activities.  Mr. Sagalow says “the decision by the United States Government to sell Bitcoins is significant, not just because they are worth about $18 million, in todays market…it really legitimizes Bitcoins.”

According to Mr. Sagalow, the U.S. Internal Revenue Service also announced that Bitcoins are considered “property” and can be used in taxable transactions. You can mow use Bitcoins to purchase items through Amazon and rent a hotel room via Expedia.com.  In addition, Mr. Sagalow says venture capital funding going towards Bitcoin investments and is supposed to top $300 million in 2014.

In this second part of the Bitcoin series in “What’s New in Insurance”, Ty Sagalow, President of Innovation Insurance Group, explains the growing legitimacy of Bitcoins, and risks associated with the peer-to-peer payment system.

There are approximately $8 billion dollars of Bitcoins around the world, says Ty, used to buy a growing number if online products and services. He questions whether holding and storing Bitcoins has risk and what it means for the insurance industry.

 Mr. Sagalow sees three main exposures: price fluctuation, mismanagement and theft. Mismanagement and theft offer opportunities for the insurance industry. According to Ty, “Mismanagement is an issue the insurance industry is familiar with and…risks covered by D&O carriers/underwriters on a daily basis.”  Ty believes Bitcoin companies should buy D&O insurance and will likely pay higher rates than more established companies.

 Great American and a number of Lloyds syndicates have announced the creation of Bitcoin theft policies.  According to Ty, Bitcoins “should be evaluated as a cyber risk” and offers opportunities for cyber and fidelity insurance carriers “too big to ignore.”

Ty Sagalow, President of Innovation Insurance Group, introduces “What’s New in Insurance”, a new segment on WRIN.tv that will look at new and emerging risks, new product and service developments as well as new ideas shaping risk management.

In the first of a 3 part installment of “What’s New in Insurance”, Mr. Sagalow looks at Bitcoins, the peer-to-peer payment system that uses open-source software.

Recently, Great American Insurance introduced a new fidelity insurance policy for Bitcoin theft.   According to Ty “…the market is still evaluating the policy…its terms and conditions as well as which companies are eligible to purchase it. “

Bitcoins have been around since 2009, when the first open-source peer-to-peer transfer software was first invented.” Ty explains that a” Bitcoin has no physical presence.” According to the U.S. Treasury Department it is a virtual currency.   Bitcoin has value, Ty says, “because…millions of people throughout the globe say it has value….A transfer or purchase using bitcoins has about 2% fee, (much lower than a credit card) and is anonymous.” 

Mr. Sagalow believes Bitcoins are here to stay. In the next edition of “What’s New in Insurance”, Ty will look at the risks posed by Bitcoins, and what new products are emerging to manage the risk.