The Web3 economy is currently under-insured and has huge potential for future growth.
While digital assets, decentralized finance (DeFi), and Web3 have sparked both hype and skepticism, their underlying technology holds transformative potential for the financial sector. Insurers must now engage with this rapidly evolving landscape. Currently, less than 1% of the $1 trillion crypto asset market is insured, signaling a vast untapped opportunity.
Why Insurers Must Engage with Web3 Now
- Mass Adoption: 40 million Americans reported using cryptocurrencies in 2021 (up from 5 million in 2015).
- Investment Surge: Venture capital funding for crypto infrastructure and Web3 startups is soaring.
- Regulatory Clarity: The U.S. is developing frameworks to govern digital assets.
- Market Expansion: Insurers and decentralized autonomous organizations (DAOs) are entering the space at an accelerating pace.
Understanding the Web3 Economy
Web3 extends beyond blockchain-enabled decentralization—it represents a new financial ecosystem with unique risks and opportunities. This paper explores Web3’s implications for insurers, moving beyond speculative headlines to analyze actionable pathways for growth.
Web3 vs. Traditional Economy: Key Differences
| Aspect | Traditional Economy | Web3 Economy |
|---|---|---|
| Governance | Centralized institutions | Decentralized autonomous organizations (DAOs) |
| Asset Ownership | Legal titles | Digital tokens/NFTs |
| Risk Profile | Established underwriting models | Emerging, complex risks |
Two Dimensions of Web3 Insurance Opportunities
1. Insuring the Web3 Economy
Growth Potential:
- Only 1% of crypto assets are insured today.
- Demand spans retail/institutional investors and businesses.
Key Risks to Underwrite:
- Custodial breaches (e.g., exchange hacks).
- Smart contract failures.
- Metaverse property damage (future potential).
👉 Explore Web3 insurance innovations
2. Reinventing Insurance via Web3 Technology
Innovation Levers:
- Smart Contracts: Automate claims (e.g., travel insurance).
- Decentralized Platforms: Peer-to-peer insurance models (e.g., DAOs).
- New Business Models: Tokenized policies, parametric insurance.
Case Study: Nexus Mutual
A decentralized mutual where members:
- Stake tokens to underwrite risks.
- Vote on claims and governance.
- Customize coverage (e.g., yield token protection).
Impact: $400+ million in coverage since 2017.
Web3 Primer: Key Questions
- What is Web3?
A blockchain-based internet enabling decentralized finance (DeFi) and digital asset ownership. - Is Web3 sustainable?
Yes—backed by advancing tech, capital inflows, and regulatory frameworks. - How big is Web3?
300M global crypto users; $1T+ digital asset market cap (2022). - Challenges?
Mainstream adoption hurdles, but opportunities outweigh risks for insurers.
Key Takeaways
- Underinsured Market: Massive room for growth as adoption rises.
- Prudent Underwriting: Define clear risk parameters for Web3 assets.
- Customer-Centric Innovation: Use Web3 to solve unmet needs.
- Business Model Evolution: Experiment with DAOs, tokenization, and decentralized platforms.
👉 Learn how Web3 transforms insurance
FAQ
Q1: Can traditional insurers adapt to Web3?
A: Yes—by partnering with tech firms or launching Web3-focused subsidiaries.
Q2: What’s the biggest risk in Web3 insurance?
A: Unpredictable smart contract failures; rigorous auditing is critical.
Q3: How soon will metaverse insurance be viable?
A: Within 3–5 years as virtual property ownership gains traction.
Q4: Are DAOs the future of insurance?
A: Potentially—they enable community-driven underwriting but require regulatory clarity.
Authors:
- Paul Ricard (Partner, Oliver Wyman)
- Joshua Zwick (Partner, Oliver Wyman)