21 March 2024
Insuring the Transportation of Gold
Traditionally, gold has been a specie risk, with owners, carriers and producers buying this form of high-value property cover. Cover is provided on an All Risks basis on location, at a third-party location or in transit; core risks include fire, flood, windstorm, theft and physical damage.
There is an onus on companies throughout the supply chain from miners, financial institutions, retailers, traders and transporters to have their insurance in place before trading with customers. In many cases, insurance forms part of the contractual terms provided by customers.
According to insurer Chubb, the most common form of claims relating to gold in transit include mysterious disappearance, substitution or theft committed by an employee or a third party with insider information.
But what happens when these crimes move into the cyber realm and physical assets like gold are represented as digital tokens on a blockchain?
A blend of lines
Transporting gold via blockchain will call for a blend of property and financial lines. Fortunately, innovation in this area is already well underway. Gallagher Specialty’s Specie capabilities already include digital assets, and its dedicated Digital Assets team covers a variety of firms, including blockchain infrastructure service providers and tokenisation (TaaS) firms.
Silent cyber
Conversely, there has been a growing awareness of the potential for physical/property loss relating to cyber. "Silent cyber" refers to the unknown or unquantified exposures stemming from cyber perils that may be triggered within traditional property and liability insurance policies. Cyber risk is systemic and the market is becoming increasingly aware of the need to align cyber to property and liability programmes to ensure there are no gaps in coverage.
Would this mean premium reductions?
Using blockchain technology to transport gold could potentially reduce Specie insurance premiums for companies. Blockchain provides a visible and immutable record of transactions, making it easier to track and verify the movement of assets like gold. This increased transparency and security can reduce the risk of theft, fraud, and other losses.
By leveraging blockchain, companies can provide insurers with a more accurate and reliable picture of their risk exposure within the supply chain and where their liability begins and ends, leading to potentially lower premiums. Additionally, the use of blockchain can streamline the claims process by providing verifiable and tamper-proof evidence, reducing the time and effort required to settle claims.
However, to be effective in reducing risk, blockchain would need to be supported by robust due diligence and responsible sourcing measures from all parties in the supply chain. For instance, both miners and refiners will need to play their part in terms of accurate reporting and keep gold segregated according to origin where appropriate.
It's also important to note that insurance premiums are influenced by various factors, including the value of the assets being transported, the security measures in place, the historical loss experience, and the overall risk profile of the company.
The insurance industry is already alive to the fact that property and cyber do not exist in silos, and using blockchain to support the transportation of gold is a prime example of how these risks will become increasingly interwoven as the scope of the digital landscape broadens.
Blockchain could revolutionise gold shipment
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