Kenyans investing or trading in cryptocurrencies such as Bitcoin may soon be able to buy insurance cover for hacking losses and employee theft.
The Insurance Regulatory Authority (IRA) has published draft regulations that introduce virtual assets insurance as a new class of business.
The regulator wants local insurers to consider a myriad of pitfalls investors could encounter, such as hacks, theft and fraud.
Regulatory uncertainty around the cryptocurrency industry and a number of high-profile, significant thefts have previously made insurers reluctant to wade into the crypto world.
Countries like the US creating a regulatory regime for dollar-pegged cryptocurrencies known as stablecoins, a milestone that could pave the way for the digital assets to become an everyday way to make payments and move money.
The US law is a huge win for crypto supporters, who have long lobbied for such a regulatory framework in a bid to gain greater legitimacy for an industry that began in 2009.
In Kenya, local cross-border traders, Kenyans in the diaspora, and multinationals are increasingly using stablecoins, setting the stage for the wider adoption of digital assets in everyday finance.
Kenya transacted in stablecoins, a type of cryptocurrency backed by assets considered reliable, such as the dollar, worth Sh426.4 billion ($3.3 billion) in the year to June 2024, according to Chainalysis, a New York-based blockchain data platform that tracks crypto use.
The IRA says it is recognising specialised insurance products like cyber risk, aquaculture, virtual assets and new motor vehicles that will cover motorbikes and three-wheelers.
It has offered virtual assets a business class number 142 among the 34 subclasses of insurance business in Kenya.
The Treasury-backed proposal marks a key shift for Kenya’s insurance sector, which has so far lacked a formal framework for insuring or regulating risks linked to virtual assets amid multiple reports showing multi-billion shillings holdings.
But that is slowly changing, as the traditionally risk-averse insurance industry mulls setting up new teams focusing on cryptocurrency, hoping to profit from its rapid growth.
Large-scale thefts have been a long-running issue for the crypto industry from its earliest years and have highlighted security concerns.
Crypto exchanges and custodians say insurance could help them in their quest for wider adoption by mainstream investors.
Read: CBK softens stance on crypto, considers regulation
Platforms that let people buy, sell and trade cryptocurrencies as well as companies that store them for clients face risks from hacks, insider theft and system failures. Token issuers worry about smart contract bugs, while companies holding crypto as treasury assets are concerned about theft and wallet breaches.
The IRA says the draft regulations are aimed at promoting the growth of “emerging and specialised insurance products, improving consumer protection and promoting inclusive insurance” within the industry.
The move complements the government’s push to regulate virtual assets and virtual asset service providers. The government earlier this year published a draft national policy and the Virtual Asset Service Providers Bill.
Kenya’s timing mirrors a broader global shift toward integrating digital-asset risks into regulated insurance markets.
The global digital-asset insurance market was valued at about $2.3 billion in 2023, according to Growth Market Reports, and is projected to reach $3.5 billion by 2032.
The cryptocurrency insurance market remains largely untapped despite a $3.31 trillion (Sh427.66 trillion) digital assets market, with only 11 percent of crypto holders currently insured, according to a recent commentary by AM Best, one of the world’s largest credit rating agencies specialising in the insurance industry.
International firms such as Lloyd’s of London, Chubb and Marsh, as well as specialised firms such as Evertas and Coincover have begun offering insurance for crypto-asset losses — mostly focused on loss or theft of digital possessions such as non-fungible tokens (NFTs).
In Kenya, many view stablecoins as a way to more quickly and cheaply make a range of payments — especially cross-border ones — which in the current system can take days to settle and are subject to interchange and other fees.
Local traders are increasingly using crypto to pay for imports and Kenyans in the diaspora use the digital assets to wire cash to families.
Multinationals are also tapping stablecoins to repatriate billions of shillings, bypassing local commercial banks.
Read: How Kenyans wired Sh426bn dollar-based crypto in a year
Peter Mwangi, the country manager of Yellow Card, says the adoption of stablecoins was first driven by remittances before their acceptance by businesses.
Yellow Card is the leading stablecoin payments infrastructure provider for Africa and other emerging markets.
Stablecoins have also become attractive for multinationals doing business across multiple countries on the continent.
Internet service provider Starlink, which is owned by tycoon Elon Musk, has converted payments made in Kenyan shillings into stablecoins and repatriated them back to the US, where the cryptos are then converted into dollars. Starlink is a client of Yellowcard.
As stablecoins race to become a part of the mainstream financial system, banks are on high alert about how the cryptocurrency could threaten their business.
Chainalysis placed Kenya as the fourth-largest recipient of stablecoins in the year to June 2024 behind Nigeria, South Africa and Ghana.
Enablers of stablecoin infrastructure, such as Yellowcard, have integrated with other financial services providers such as banks, fintechs and mobile network operators, allowing the seamless conversion of the digital currencies into cash via mobile money wallets.
The cost of sending stablecoins is low compared to traditional methods, such a banks and remittances firms like Western Union, averaging between 0.5 and one percent, in contrast to between four and seven percent for other channels, says Yellow Card.
Gig economy or remote workers in Kenya are now accepting stablecoins as a form of payment in place of earlier services such as PayPal, on cost efficiency and convenience, the firm adds.
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