Despite the notorious hacks and thefts surrounding the cryptocurrency sector, big-name insurance firms alike Allianz and AIG are quietly making their presence felt in the industry, offering insurance deals to digital asset businesses.
Crypto-Insurance Making its Mark Felt
As reported by Bloomberg on July 19, 2018, companies like XL Group, Allianz, AIG, and Chubb are creating customized insurance packages for protecting cryptocurrency businesses.
Interestingly, London-based Aon reportedly captures over 50% of the cryptocurrency insurance market, with new industry-specific protection deals surfacing regularly.
New York-based Marsh & McLennan notes the year has seen “brisk” business in the field of crypto-insurers, revealing the company even has a dedicated team working on blockchain policies for the burgeoning sector.
In line with the high valuation of cryptocurrencies, reports state the premiums for crypto-insurances are over five times those of traditional corporate policies on an average per annum. Cautious policies are in place for the sector and have up to “a dozen underwriters” with $5-15 million in protection bonds per insurance.
A Significant Opportunity
The high premiums are in accordance with the industry’s perceived high risks, where over $1.6 billion of funds were lost from hacks or thefts in 2018 alone. Data collated by Fast Company notes over $15 billion worth of bitcoin until 2017 were stolen, with the figure slated to reach higher amounts if altcoin hacks are considered.
Insurers declined to reveal exact specifications of the crypto-insurances offered. Bloomberg spoke to Chubb and XL, who stated no insurance would be written for cryptocurrency exchanges and all deals are conducted on a case-by-case basis respectively. In contrast, the American International Group (AIG), confirmed signed agreements with cryptocurrency custodians and digital asset exchanges.
Meanwhile, Allianz’s Christian Wieshuber believes the crypto-insurance business represents a tremendous opportunity:
“Insurance for cryptocurrency storage will be a big opportunity…digital assets are becoming more relevant, important and prevalent and we are exploring product and coverage options in this area.”
Coinbase, recently in the news for its security token statements, is reportedly one of the largest cryptocurrency firms to purchase insurance.
Their “Custody” service holds customer funds in privately-held cold storage wallets, presumably storing hundreds of millions as the minimum client limit is a hefty $10 million.
The Future of Crypto-Insurance $ Issues
Interestingly, blockchain technology, the fabric of all cryptocurrencies, is touted as a significant tool for the insurance industry itself. In April 2018, Marsh and McLennan partnered with technology giant IBM to develop a commercial blockchain application powered by “proofs of insurance.”
So far, 2018 may go down as one of the most notorious years for cryptocurrencies after the sheer number of scams, hacks, and thefts in the sector, which may contribute towards why crypto-insurance activities have remained a relatively unknown activity.
However, London-based Lloyd’s, the world’s oldest and most prominent insurance market, published a bulletin in July 2018 appealing its agents to proceed with a risk-seeking, cautious view for insuring the volatile asset class.
Meanwhile, smaller cryptocurrency firms are not cultivating smooth relationships with insurance firms.
BitGo, a Palo Alto-based blockchain security company, claimed to have met over 75 insurers in May 2015. While the firm eventually ended up with one deal, it dropped the policy in 2016 after citing high costs of maintaining insurance.
Apart from costly premiums, policies reportedly take months of scrutiny before getting approved, and in some cases, exclude theft and hacks from their terms of repayment.