Category: Blockchain insurance · Reviewed by Matt Bartlett, Director · Founder · Last reviewed 2026-06-10
Token-based insurance is the representation of insurance liabilities, reinsurance cessions or insurance-linked securities as digital tokens on a distributed ledger, allowing fractionalised holding, programmable settlement and on-ledger transfer.
Token-based insurance covers a spectrum from internal accounting tokenisation, through tokenised ILS issued under the Bermuda Monetary Authority’s Innovation Hub, to UK-regulated digital securities issued under the Bank of England and FCA’s Digital Securities Sandbox launched in 2024.
Definition
Token-based insurance applies the techniques of asset tokenisation — fractional digital representation of underlying rights — to:
The token operates as a digital bearer or registered instrument, governed by a smart contract that codifies issuance, transfer and redemption terms.
Legal / Regulatory basis
The UK regulatory analysis varies by token type:
Financial Services and Markets Act 2000 and SI 2001/544 — security tokens are within the FCA’s perimeter under the same categories as their non-tokenised equivalents (transferable securities; debentures; units in collective investment schemes).
Financial Services and Markets Act 2023 — provides legislative powers for HM Treasury to extend regulation to tokenised forms, and creates the Financial Markets Infrastructure (FMI) Sandbox under section 13.
HM Treasury, Future Financial Services Regulatory Regime for Cryptoassets (February 2023; response October 2023) — confirms intention to bring fiat-backed stablecoins and certain other cryptoassets within the regulatory perimeter.
HM Treasury, Digital Securities Sandbox: Final Policy Statement (2023) and the Digital Securities Sandbox (Sandbox Arrangements) Regulations 2024 — operationalising a five-year sandbox in which firms can issue, trade and settle tokenised securities under modified rulebook provisions.
Bank of England and FCA, joint operating arrangements for the Digital Securities Sandbox launched 2024 — covering CSDs, trading venues and settlement banks.
FCA PS19/22, Guidance on Cryptoassets (July 2019) — taxonomy of tokens.
Bermuda Monetary Authority, Innovation Hub and the Insurance Amendment Act 2018 — for tokenised ILS issued in Bermuda.
EU comparators include Regulation (EU) 2022/858 on a pilot regime for market infrastructures based on DLT (the EU DLT Pilot Regime), in force from 23 March 2023.
How it works in practice
A typical tokenised insurance-linked security is structured as follows:
An insurer cedes a tranche of catastrophe risk to a special purpose vehicle (SPV) — see Cayman ILS and Bermuda comparators.
The SPV issues notes; under a tokenisation arrangement, the notes are represented as digital tokens on a permissioned or public ledger.
Investors hold tokens in custodial wallets; transfer is by on-ledger settlement subject to whitelist controls for KYC/AML compliance.
Coupon payments and triggers (parametric or indemnity) are recorded on-ledger; cash flows are executed off-ledger via a paying agent.
On the SPV’s wind-up, redemption is computed on-ledger and paid in fiat.
The Digital Securities Sandbox permits regulated firms to operate as Digital Securities Depositories (DSDs) and Digital Securities Trading Venues (DSTVs), issuing tokenised securities with modified rulebook applicability.
Common variations / Subsequent developments
Tokenised cat bonds — pilots include the BlockFin and Replexus tokenised cat bond programmes, and Bermuda-domiciled issuances under the BMA Innovation Hub.
Tokenised sidecars — fractional reinsurance positions, sometimes with retail-accredited investor onboarding.
Tokenised captives — used by single-parent and group captives for stakeholder transparency.
Tokenised parametric covers — overlap with parametric insurance and DeFi-style products.
The UK Digital Securities Sandbox launched in 2024 is the principal UK framework for tokenised insurance-linked securities; participation is open to PRA- and FCA-authorised firms and to new entrants seeking to operate within the sandbox perimeter.
Example
A UK reinsurer establishes a £200 million sidecar to share quota share of its 2026 Atlantic hurricane exposures. The sidecar’s notes are issued in tokenised form on a permissioned Corda ledger operated by a Digital Securities Depository within the BoE/FCA Digital Securities Sandbox. Institutional ILS funds and family offices hold the tokens. When Hurricane Bertha makes landfall and causes losses above the attachment point, the smart contract updates the principal balance and reduces redemption proportionally. The cedent’s Solvency II treatment of the reinsurance is unchanged by the tokenisation, and disclosures to investors comply with the modified Sandbox rules.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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