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Can NFTs be insured, and who carries the risk?

Nike and RTFKT launched Nike CryptoKicks in the beginning of the year which is a collection of NFT sneakers called the “RFTKT X Nike Dunk Genesis,”. Owners can personalize these sneakers using ‘skin vials’ from different designers by adding new patterns and effects such as flashing lights and floating swooshes. Some of the NFT sneakers have already fetched more than $100,000. With so much spending in the NFT space, the biggest question that needs to be answered is ‘Can NFTs be insured?’

Nike CryptoKicks

The Past and Present

The first NFT-Quantum was published in 2014, but the NFT world has gained a lot of traction in the past year. The Merge created by an anonymous digital artist Pak was sold for a record-breaking $91.8 million in December’21, making it the most expensive Non-Fungible token (NFT) transaction to date. Beeple’s latest masterpiece artwork was sold for $69 million. 

The Merge

According to NFT stats compiled by Chainalysis Inc., the NFT marketplace grew to almost $41 billion in 2021, closing in on conventional art sales. 

The Scam Game

According to a report in Decrypt, the designers of the Big Daddy Ape Club scammed investors out of $1.13 million, making it the largest ‘rug pull’ in Solana blockchain’s history.

Recently, an attacker hacked into the Instagram account of the Bored Ape Yacht Club (BAYC) and stole about $3 million in NFTs. The hacker used a phishing link to steal tokens from victims’ cryptocurrency wallets. 

Non-Fungible Tokens can’t be traded interchangeably due to their unique numbers and codes. Because NFTs are so expensive, hackers and scammers have been actively eyeing the NFT world for their monetary gains. For buyers, digital security has become a serious concern.

Ensuring digital assets is an absolute necessity now, so the question here is whether NFTs can also be insured? The answer is, yes. Buyers may get compensated for fraudulent activities in the following situations:

a)In case, the private key is lost by the owner.

–When an NFT is created, it has dual keys: private and public. The blockchain ledger maintains the public key whereas the private key acts as proof of ownership.

b)When scammers sell replicas and fake digital assets.

c)Damages caused by intervention on the blockchain.

What’s happening in the NFT Insurance space?

Coincover provides corporate and consumer protection for NFTs through an insurance-backed solution. The company protects its partners’ wallets and the NFTs they possess from hacking, phishing, and other illegal activity, while also providing an insurance-backed guarantee in the event that something goes wrong. This is in addition to their disaster recovery service, which is a backup key recovery service that allows NFTs to be recovered in the event of lost passwords.

Due to increased demand from NFT holders seeking security against hacking and theft, Hong Kong-based virtual insurer OneDegree has teamed up with Munich Re to insure digital assets.

Recently, Amulet has secured $6m in its first funding round to provide insurance coverage in the Web 3.0 world which includes NFTs as well. The first Rust-based decentralized finance (DeFi) insurance protocol will utilize Solana’s PoS network to provide insurance service and stable returns. Using its unique Protocol Controlled Underwriting and Future Yield Backed Claim mechanisms, the firm will reduce the risk for underwriting capital providers.

The Challenges

A report by Technavio predicts that the NFT market will grow by $147.24 billion from 2021 to 2026 at a CAGR of 35.27%. With this growing demand for NFTs, there is a pressing need for NFT protection in the virtual world. Ensuring an NFT would be very different from insuring a conventional product or service. Insurers have three key challenges that they need to address when it comes to insuring NFTs:

  1. Uncertainty is involved in the valuation of NFTs since there isn’t any fixed market price. 
  2. Lack of structured and unified legal framework for ensuring NFTs.
  3. Ambiguity in the scope of the risks associated with NFTs is compounded by the fact that technology is evolving at a rapid pace.

The Road Ahead

The dynamics of the NFT market has changed in the past few months. After witnessing a fall in the NFT prices, user expectations have also changed dramatically where NFT utility is the latest lookout for the NFT customers. One of the most common utility is NFT being used as a gaming asset. Be it an art NFT or utility NFT, its loss may have serious repercussions not just for the owner, but also for the entire ecosystem, as NFT may lose its value if it is not secured. Open Sea – the world’s largest NFT marketplace lost $1.7 million worth of NFTs due to a phishing attack. A Bengaluru-based caricature artist found that one of his artworks was listed on Open Sea, without his knowledge. The media and insurance companies have been paying close attention to massive losses like these. NFT owners and creators will seek insurance to protect them as they become more aware of the risks involved in owning digital assets. With pioneers such as Coincover and Amulet leading the way, it’d be intriguing to see how the development unfolds in the NFT insurance space.

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Retention playbook for Insurance firms in the backdrop of financial crises

4 minutes read

Belonging to one of the oldest industries in the world, Insurance companies have weathered multiple calamities over the years and have proven themselves to be resilient entities that can truly stand the test of time. Today, however, the industry faces some of its toughest trials yet. Technology has fundamentally changed what it means to be an insurer and the cumulative effects of the pandemic coupled with a weak global economic output have impacted the industry in ways both good and bad.

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Source: Deloitte Services LP Economic Analysis

For instance, the U.S market recorded a sharp dip in GDP in the wake of the pandemic and it was expected that the economy would bounce back bringing with it a resurgent demand for all products (including insurance) across the board. It must be noted that the outlook toward insurance products changed as a result of the pandemic. Life insurance products were no longer an afterthought, although profitability in this segment declined over the years. Property-and-Casualty (P&C) insurance, especially motor insurance, continued to be a strong driver, while health insurance proved to be the fastest-growing segment with robust demand from different geographies

Simultaneously, the insurance industry finds itself on the cusp of an industry-wide shift as technology is starting to play a greater role in core operations. In particular, technologies such as AI, AR, and VR are being deployed extensively to retain customers amidst this technological and economic upheaval.

Double down on digital

For insurance firms, IT budgets were almost exclusively dedicated to maintaining legacy systems, but with the rise of InsurTech, it is imperative that firms start dedicating more of their budgets towards developing advanced capabilities such as predictive analytics, AI-driven offerings, etc. Insurance has long been an industry that makes extensive use of complex statistical and mathematical models to guide pricing and product development strategies. By incorporating the latest technological advances with the rich data they have accumulated over the years, insurance firms are poised to emerge stronger and more competitive than ever.

Using AI to curate a bespoke customer experience

Insurance has always been a low-margin affair and success in the business is primarily a function of selling the right products to the right people and reducing churn as much as possible. This is particularly important as customer retention is normally conceived as an afterthought in most industries, as evidenced in the following chart.

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        Source: econconusltancy.com

AI-powered tools (even with narrow capabilities) can do wonders for the insurance industry at large. When architected in the right manner, they can be used to automate a bulk of the standardized and automated processes that insurance companies have. AI can be used to automate and accelerate claims, assess homeowner policies via drones, and facilitate richer customer experiences through sophisticated chatbots. Such advances have a domino effect of increasing CSAT scores, boosting retention rates, reducing CACs, and ultimately improving profitability by as much as 95%.

Crafting immersive products through AR/VR

Customer retention is largely a function of how good a product is, and how effective it is in solving the customers’ pain points. In the face of increasing commodification, insurance companies that go the extra mile to make the buying process more immersive and engaging can gain a definite edge over competitors.

Globally, companies are flocking to implement AR/VR into their customer engagement strategies as it allows them to better several aspects of the customer journey in one fell swoop. Relationship building, product visualization, and highly personalized products are some of the benefits that AR/VR confers to its wielders.  

By honoring the customer sentiments of today and applying a slick AR/VR-powered veneer over its existing product layer, insurance companies can cater to a younger audience (Gen Z) by educating them about insurance products and tailoring digital delivery experiences. This could pay off in the long run by building a large customer base that could be retained and served for a much longer period.

The way forward

The Insurance industry is undergoing a shift of tectonic proportions as an older generation makes way for a new and younger one that has little to no perceptions about the industry. By investing in next-generation technologies such as AR/VR, firms can build new products to capture this new market and catapult themselves to leadership positions simply by way of keeping up with the times.

We have already seen how AR is a potential game-changer for the insurance industry. It is only a matter of time before it becomes commonplace.

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