Why Is Our Insurance Dollar Denominated, Not Bitcoin Denominated?

Bitcoin is the hardest money ever created, so why does AnchorWatch denominate its insurance policies in  dollars instead of Bitcoin?

It starts with regulations. In the United States, currently state Departments of Insurance consider bitcoin an “unadmitted asset” on the insurers balance sheet, which means when the insurance company is not credited by the regulators as having the value of bitcoin in their reserve pool. This makes bitcoin denominated policies less attractive to insurers to underwrite. 

Is dollar denominated insurance a good value?

The denomination of the policy does not mean that the value of the policy is in question. Regardless of if denominated in bitcoin or fiat, you always get the amount of insurance you pay for. 

With a dollar denominated policy, you buy a dollar amount of insurance at the beginning of the policy and know how much fiat it will have cost you over the year to keep the limit insured. You know that you’ll have spent, for example, $5000 for a year of insured custody valued at $1M. If the bitcoin goes to $2M, you can choose if you want to purchase another $1M of insurance for an additional $5000 (prorated for the balance of the year) or if you want to allow the value of your bitcoin to increase in value but remain at $1M of coverage. It’s predictable.

When bitcoin denominated policies become prevalent in the future, it will look different. Instead of a $1M policy, you would buy a 10-Bitcoin policy and pay .05 BTC for a year of insurance coverage (assuming the same .50% premium rate, for illustration).  If the value of your bitcoin is $1M during the year, and you spent the equivalent of $5000 on insurance. If the value of your bitcoin is $2M partially through the year, you will have now spent the equivalent of $10,000 on the policy. The outcome is that you remain ‘fully insured’ as the price fluctuates while also potentially spending far more on the fiat value of insurance that you expected to at the beginning of the year.

Which policy denomination is preferable to a given customer will be determined by their preference to pay for their insurance in fiat or in bitcoin, and whether the value full upside coverage more or managing their expenses more to ensure a minimum nest egg is insured. For some customers, paying for insurance premium in bitcoin is not desired and they would prefer to use other sources of fiat capital to pay their living expenses. Until the world is operating on a full bitcoin standard, both denominations provide customers with the amount of the insurance they paid for, and it’s likely in the future both policy denominations will exist side-by-side for customers to choose between.

How AnchorWatch policies handle price volatility

Since the currently available AnchorWatch policies are denominated in bitcoin, it’s worth noting how claims are handled at the time of a loss. AnchorWatch policies are fully financially backed by Lloyd’s of London and are available to customers with a 10% or a 25% deductible. For example, a $1M policy that experiences an approved claim will ultimately benefit the customer $900K if they opt for the 10% policy - effectively mitigating the risk of financial ruin as insurance is designed to do. 

If the price of the bitcoin goes up, but the owner chooses not to increase their insurance limit, they will continue to be insured up to their insurance limit. Without increasing insurance coverage, they would still receive $900K in a claim. 

Like most property insurance, claims are generally paid on a fair market value (FMV) basis. AnchorWatch policies are the same with one unique benefit to its policies holders: if the value of the insured bitcoin drops below the insured value minus the deductible, AnchorWatch and Lloyd’s of London will waive the deductible meaning you’d receive the value of the bitcoin at the time of a claim and could (if you chose) take your benefit payment to the exchange and make yourself whole in bitcoin terms, or nearly. This concession was to acknowledge the volatility of the asset class and ensure fair treatment of the customer in the case of an approved claim.

Protecting Your Bitcoin with Trusted, Secure Coverage

Dollar-denominated insurance allows for stable, reliable coverage that is easy to manage. Your coverage amount is fixed, so there are no surprises but is easily increased to maintain full coverage and peace of mind. This approach allows us to provide insurance that is fair, sustainable, and built for long-term Bitcoin holders while gaining access to the most trusted insurance carrier in the world to protect your bitcoin.. AnchorWatch policies are backed by Lloyd’s of London, giving you confidence that your coverage is reliable. Lloyd’s of London is rated A+ by AM Best. See policy for exact coverage, exclusions, terms and conditions.

If Bitcoin is part of your long-term financial future, it’s worth protecting with insurance that is designed for how you actually use it. AnchorWatch is here to help.

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