The popularity of NFTs will continue to skyrocket in the coming year, creating both risk and opportunity for the insurance industry.
Over the course of the past year, NFTs (non-fungible tokens) have transformed the way people view art, music, and sports. Considering that NFTs can represent anything digital, we anticipate that usage will extend to other digital media in due course. In 2021, sales of NFTs exceeded $2.5 billion dollars with no signs of slowing down. Despite the new, volatile, and unregulated nature of NFTs, we predict that insurers will continue weighing the risks against the opportunities to capitalize on this expanding and lucrative new financial tool.
In terms of risk, we anticipate that potential NFT losses will likely be subject to the same risks of loss and theft as other digital assets like Bitcoin. Sophisticated investors and those with financial means will likely turn to existing forms of insurance seeking to recoup their losses. Insurers whose policies may potentially respond to such claims will need to determine whether their individual wordings potentially trigger coverage.
On the other hand, current trends seem to indicate that NFTs are largely popular among the younger generation who may not recognize the role that insurance plays with respect to risk of loss. Given the unique nature of NFTs (and their associated risks) coupled with a market of new potential customers, there will almost certainly be a need for new, bespoke insurance products providing unique solutions for digital assets, including NFTs.
