Welcome back. Crypto and fintech firms are applying for federal bank charters at a rapid pace, and traditional finance and digital assets are coming together. The companies best positioned to land big institutional partners are the ones that understand what banks want when it comes to risk and insurance. With trillions of dollars moving on-chain, many institutions will not jump in until those risks are properly covered. And now AI is raising a new question: who pays when AI moves money and gets it wrong? Joining us to discuss this is Garrett Droege, Fintech and Digital Assets Vertical Leader at WTW. Garrett, thanks for being with us today.
Thanks for having me.
Crypto and fintech firms are applying for charters at a rapid pace. When one of these companies becomes a bank, what changes from a risk standpoint?
A lot, actually. It does seem like every week we get a new announcement, sometimes every day, that someone has filed for a new OCC charter. They are used to being service providers for banks. They are not used to being banks. There are different capital requirements. There are different investor expectations. And from a risk and insurance standpoint, they are usually not prepared. So there are a lot of changes that have to take place for their insurance program, for their bonding, for their licensing. The regulations are different. Quite a bit has to change under the hood from an insurance standpoint.
We have been seeing traditional finance and digital assets come together. What are banks looking for from a risk and insurance perspective before they partner with a fintech or crypto company?
The convergence, we talk about that all the time. It is hard to find the line now between digital assets and fintech and even banking, because banks themselves are becoming more like fintechs. They are tokenising deposits. They are issuing stablecoins. Meanwhile, fintechs are filing for OCC charters. What banks are looking for is not taking on more risk. They are already taking on extreme risks, and they are not interested in partnering with companies that do not have all the security protocols and proper risk transfer in place. If something goes wrong with this new technology, which quite frankly a lot of banks still do not understand, they want to make sure there is coverage for that.
Let’s talk about crypto. Clarity did not go through. The question a lot of people have is why is it so hard to insure crypto?
I have done crypto insurance for ten years. We are miles ahead of where we were a decade ago, but it is still a very tough market. There are not a lot of underwriters that understand the technology, and therefore there are not a lot of insurance companies willing to take on digital asset risk. In fact, many insurance companies say we won’t insure digital assets. So you have a finite marketplace and limited capacity, and what capacity is available goes to the best risks. Underwriters are looking for the most quality security controls. Who has their SOC 2 Type 2? Who has the right risk management procedures? They are the ones that can get coverage. Otherwise it is still very difficult.
When an AI system moves money and gets it wrong, who is responsible, and can that even be insured?
It is in the news every day. This is probably the number one question we get from our clients: what about agentic AI, and does my insurance policy cover that? The answer in classic insurance is maybe. It is usually silent, which is not a great place to be. I prefer things to be in black and white. Our position is it is probably covered, but we still do not know. We have not had a massive claim resulting in billions of dollars lost in an atomic settlement done through an agent. We are used to humans pressing buttons. What happens when the agent presses the button and it moves money somewhere it shouldn’t? We still do not really know.
Are companies ready for AI to handle financial transactions on its own, and are risk and insurance teams set up for that?
Everyone is talking about it, and I do think the framework is being built, but we are building the plane while we are flying it, and it seems to be moving at light speed. As insurance brokers we are rapidly trying to find coverage for clients that have those kinds of exposures, and talking through with risk managers what happens when not only banks are using AI for automation, but consumers are feeding their banking information into their Muse account or whatever AI they prefer. We do not know.
You have said insurance, not regulation, is the final hurdle for digital assets. Why?
We got clarity. We got GENIUS. We got really close with the Clarity Act. But insurance is that final barrier, because without risk transfer people just are not comfortable with digital assets broadly. We have FDIC for traditional assets in your bank account. People want to see some kind of similar guarantee for digital assets. And the companies that are adopting those frameworks and protecting their clients are the ones getting the adoption.
With trillions of dollars moving on-chain, is there enough insurance coverage to meet all this new demand?
No, but there is not enough insurance coverage for all traditional assets anyway. So some of it is good old-fashioned risk management. We will transfer the risk to an insurance company where we can, and we will protect against the risk where we can’t transfer it. In banking we have safeguards like two signatures on a cheque. Building those same digital safeguards for digital assets, that is what people have to think about.
How long until there is enough coverage?
I have been arguing with chief underwriting officers at insurance companies for years, because my prediction, and it is coming true, is that there will come a time when there is no difference. Assets are all digital. We call it digital finance today because we have banks tokenising deposits and launching their own stablecoins. Insurance companies, whether they want to or not, are going to be insuring these digital assets. We are getting there, but it is moving mountains to do it.
It is changing at a rapid pace. It will be interesting to see where we are in five or ten years.
I do not even think in years terms anymore. I think in weeks and days, because the news is so hard to keep up with, with changes happening every single day.
Great. Thank you so much for joining us.
Thanks for having me.
