Cryptocurrency Insurance

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As cryptocurrency continuously evolves and gets adopted, the question of insuring it has come up. In the last year alone, a few cryptocurrency exchanges have been hacked and millions of dollars lost like Coincheck, Coinrail, Bithumb, and Bitgrail. A report posted last year on Coindesk estimate a value of $2.7 million is stolen every day from crypto exchanges by hackers. Cryptocurrency as it stands is more lucrative than regular fiat and that is why it attracts the criminal hacking activities that plagues most exchanges. Enter global insurance companies.

So far a number of insurance companies have emerged with insurance services for cryptocurrency. They include XL Caitlin, Mitsui Sumitomo Insurance and Chubb. BlockRe is one insurance company that is solely dedicated to offering crypto insurance for digital asset holders and blockchain users. Last year, there was a conference held regarding insuring cryptocurrency dubbed Decentralized Insurance Developer Conference. Crypto insurance does not come without its risks. And I will list a few of them here:

  1. Currency of Claim – in normal settings, insurance claims are paid out in the currency of the respective countries where they were taken from. Compared to fiat currency, crypto is very volatile and this poses a problem in paying out the claims. For example, Bitcoin could be worth $18,000 today and $10,000 the next, which means that the sum assured would change from time to time. To avoid such problems as to if the company has set aside any enough reserves in the event of these occurrences, some insurance providers offer to hold some of the crypto in order to make the claim payments.
  2. Unpredictability – one of the most convenient ways of insurance services provision is the reliability of the market trends and history as such. Many companies rely on the market trends in order to make their calculations as well as draft their policies. As for cryptocurrency, the nature of the market is one that is almost impossible to predict. It also does not help that the entire system is based on technology which is also highly unpredictable and evolves consistently. Keeping abreast with developments may not be the easiest thing nor the cheapest for insurance companies.
  3. Anonymity – it is literally the whole modus operandi of cryptocurrency transactions. Which attracts a lot of negative users such as terrorists, fraudsters, hackers, corrupt politicians, criminals and such. Now, insurance policies cannot be issued to anonymous clients, which limits their services to a great extent.

As it stands, these issues have greatly affected the idea behind offering insurance services as there are very few takers, and investors are looking for ways to protect their assets. Marsh & McLennan insurance company recently formed a team of 10 professionals to service blockchain startups and AON which stands as the world’s second largest insurance brokers, offered crypto coverage for Metaco clients.

According to AON, the insurance policies will offer crime insurance products to Metaco clients that use both online and offline wallets. The step by AON will attract other insurance providers into investing in cryptocurrency insurance especially for hot wallets and exchanges. As it stands, the supply of digital asset insurance does not keep up with the demand. There is over $100 billion in cryptocurrency circulation but about $6 billion in insurance coverage available. It is also widely assumed that the cost of insuring cryptocurrencies will not be for the weak pockets; for example, insurance provider Allianz offers crypto insurance services but does not advertise the products on their website. Contacting the brokers directly seems to be the only option as to find out the extent of the policies offered. An expert on the idea of digital assets insurance stated that the cost of premiums in a year could go as high as $200,000 and that is for companies as opposed to individual clients.

Other strides into crypto insurers is the partnership between Gemini and AON to provide custody of digital assets. Another move in the same direction was made by Lloyd’s Bank and Kingdom Trust Cryptocurrency Insurance. The latter already stores over thirty assorted cryptocurrency token types. In addition, Lloyd’s Bank also provides insurance coverage for 2% of Coinbase’s funds.

In conclusion, there are a few concerns as to developing insurance products for cryptocurrencies. Namely being that there is a gap in information about cryptocurrencies and blockchain which means that the transparency aspect has to be addressed. Another issue is that concerning cryptocurrency value in the sense of settling claims since policies are in crypto but settlements are in fiat. Companies like AON are paving the way for other insurers in the sense of market evaluation. Another issue would be the accommodation of individual cryptocurrency holders being able to access insurance directly at affordable rates as compared to offering the service to exchanges and companies only.

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