How insurance is helping to bring confidence to the next generation of financial markets
For centuries, commerce has depended on ledgers. Whether recording ownership of cargo aboard a ship, payments between merchants, or investments held by financial institutions, economic activity has always relied upon accurate records and confidence in their integrity.
Today, one of the most significant developments in financial services is the reinvention of the ledger itself. Blockchain technology typically uses distributed ledgers that are maintained by multiple participants rather than a single central authority (although some permissioned blockchain networks are operated by a limited number of approved entities).
While cryptocurrencies may dominate headlines, the broader opportunity lies in how blockchain and tokenisation – which uses blockchain technology to digitally represent real world assets such as bonds or commodities – could transform the way ownership, settlement and transactions are recorded across the financial system; modernising existing financial infrastructure rather than simply creating entirely new forms of digital assets.
"Financial markets have long depended upon trusted ledgers for their record-keeping. Now, blockchain and tokenisation represent a new approach to maintaining those financial records. This technology offers the potential to make many processes more efficient, transparent and accessible,” says Hiscox London Market’s Joe Dearsley, Senior Underwriter – Financial Institutions. “And, for the insurance industry, there is now an important role to play in helping to support financial services organisations of all types successfully adopt and use this fast-moving technology.” However, adds Dearsley, caution remains essential. "The opportunities are significant, but this is still a sector that has experienced periods of hype, speculation and, in some cases, outright misconduct.”
Institutional participation and tokenisation
Today’s participants in the digital asset ecosystem include specialist custodians, exchanges and infrastructure providers alongside established banks, payment companies and asset managers. Banks are exploring tokenised deposits and blockchain-enabled payments, while asset managers are assessing whether investment products can be issued in tokenised form. This growing institutional participation is helping the sector evolve towards the development of more practical applications for use across financial services.
Convergence between digital assets and traditional finance
Importantly, the convergence between digital assets and traditional finance is not flowing in one direction. Whilst traditional financial institutions are exploring blockchain technology and tokenisation, digital asset businesses are also acquiring traditional financial infrastructure and expertise. A notable example is Bullish's acquisition of Equiniti, one of the UK's leading share registration and record-keeping businesses.
This transaction highlights an increasingly important theme within the sector. “Rather than replacing existing financial infrastructure, many firms see blockchain technology as a potential enhancement to it,” explains Dearsley. “While registrars, transfer agents, custodians and settlement systems have long existed to record and verify ownership, distributed ledger technology seeks to perform many of the same functions, albeit in a different way; it’s an evolution of an existing process rather than a revolution.”
From experimentation to institutional adoption
Regulation has also played an important role in supporting that evolution. In Europe, the Markets in Crypto-Assets Regulation (MiCA) has created a more consistent framework for crypto-asset businesses while in the UK, the Financial Conduct Authority (FCA) continues to develop its crypto-asset framework as policymakers seek to balance innovation with consumer protection and market integrity.
“These developments are helping to establish clearer expectations around governance and how firms manage their financial and operational responsibilities. As the regulatory framework matures, it becomes easier for established financial institutions to participate confidently in the sector,” says Dearsley.
Different technology, familiar underwriting principles
Another important building block in the digital asset space is the support of the insurance industry, which is continuing to evolve and mature alongside the sector. For insurers, supporting the growth of the use of digital assets requires more than simply providing cover; identifying businesses that combine sound governance with disciplined execution and sustainable business models remains paramount. “As insurers, we need to distinguish between businesses that are building sustainable long-term franchises and those that may simply be capitalising on market enthusiasm without the governance, controls or financial discipline required for long-term success," says Dearsley.
Whilst digital asset businesses may utilise innovative technologies, many of the underlying underwriting considerations remain remarkably familiar. "Of course, we pay close attention to the specialist operational and security risks associated with digital assets, but particularly when underwriting custodians, exchanges and platforms for comprehensive crime and professional indemnity coverages, we want to understand the security architecture, custody arrangements, operational resilience and control environment supporting the business," says Dearsley.
However, technical controls are only one part of the underwriting assessment. "Ultimately, we are asking many of the same questions we would ask of any financial institution. What is the organisation's approach to enterprise risk management? Is there a robust governance framework? Are risk decisions appropriately challenged? Does management receive effective oversight from experienced independent voices?" says Dearsley.
Diversity of experience matters
From Hiscox’s perspective, strong businesses are often characterised by diversity of experience around the boardroom table. That experience may include individuals from traditional financial services, accountancy, audit, operational risk, regulatory, technology and digital asset backgrounds.
"We are more confident when we see businesses benefiting from a range of perspectives. Digital asset specialists bring important technical expertise, but equally valuable are directors and non-executives who have spent years navigating governance challenges, regulatory scrutiny and operational complexity within more traditional financial institutions," says Dearsley.
Experience has shown that the highest-quality businesses are rarely built around technology alone. Capital strength, effective decision-making, independent oversight and a mature control environment remain critical regardless of whether the business operates in traditional financial services or digital assets.
Insurance as an independent assessor
It’s not just about underwriting either. The insurance market can also contribute to the sector in another valuable way through independent assessment. "Insurers inevitably gain exposure to a large number of companies operating across the sector and how they work. That gives us a unique perspective on what good governance, effective controls and sustainable growth look like. In many respects, the market acts as an independent assessor, rewarding firms that can demonstrate robust risk management and long-term resilience," says Dearsley.
The requirement to secure insurance often encourages businesses to strengthen governance structures, improve controls and demonstrate a mature approach to enterprise risk management. In that respect, insurance can help contribute to stronger standards across the sector.
Building confidence in a maturing market
The London insurance market has a long history of supporting emerging industries. From maritime commerce to aviation, cyber and now digital assets, its role has consistently been to provide financial resilience whilst encouraging robust risk management and good governance. In this case, the opportunity presented by blockchain technology and tokenisation is considerable, says Dearsley: “Yet, as with every significant development in financial services, sustainable growth will depend on strong governance, effective regulation and disciplined risk management.”
Following a period marked by extraordinary innovation, rapid growth, speculation and occasional misconduct, the digital asset sector is increasingly demonstrating the characteristics of a maturing market. The sector’s next chapter is being shaped by greater institutional participation, alongside a clearer regulatory environment and a broad focus on governance. At the same time, the distinction between traditional finance and digital assets is becoming blurred as both industries converge around a shared goal: creating more efficient, transparent and resilient financial infrastructure.
"As digital assets mature and institutional participation continues to increase, insurance can help provide the confidence, independent scrutiny and financial protection needed to support the sector's next stage of development," concludes Dearsley. "Ultimately, we're not underwriting technology for technology's sake, we're underwriting well-run businesses. And while insurance alone does not determine the success of a new industry, it can help identify, support and protect those organisations that are building resilient, sustainable and well-governed operations."