Insurance for digital assets is here.
The premiums are high—as high as five percent of the coverage limits. Do crypto insurance policies pay out? Aon and Marsh & McLennan, two firms offering crypto insurance, have told media they know of no insurers paying out for crypto losses. But then, few businesses have managed to obtain underwriters’ approval for the coverage they’d like, and those who have obtained policies are finding quite a few exclusions. Some policies won’t pay for theft or hacks.
In short, this is very much an emerging area. Crypto insurance leader Aon is working to speed up the underwriting process. While Lloyd’s of London has asked its agents to proceed with caution, XL and Chubb, given recent reporting by Bloomberg, appear to be quietly moving into the underwriting role. Underwriters have been willing to offer as much as $5-$15 million in crypto coverage. Businesses needing higher coverage amounts may need a collection of underwriters, spreading out the risks.
To Insure or Not to Insure? Risks Either Way
The popular U.S.-based exchange Coinbase is a believer. It buys insurance for hot wallets, which hold the small percentage of customer assets involved in active trading. For security reasons the company does not disclose how much coverage it has for offline storage.
The London crypto custody startup Trustology hopes to secure up to £85,000 in coverage for its customer accounts to match what banks provide. But the policies are expensive, and the firm is considering a backup plan of self-insuring.
Crypto startup Autonomous Research bit the bullet and bought a plan—viewing possible losses as simply too major not to cover.
American International Group has encountered growing demand from exchanges and custodians and now offers crypto provisions within regular insurance policies. And Allianz has reportedly begun offering individual coin theft coverage. The company regards the crypto insurance market as one of the big opportunities in the sphere of digital wealth.
In Crisis, Opportunity
Problems await solutions in this area. Cryptocurrencies are volatile, so policies can undervalue holdings. Insurance also must come up with ways to answer the question of who takes responsibility for phishing fraud losses.
Yet blockchain technology itself holds promise for solving these and other sticking points.
Now, Marsh and McLennan and IBM are developing a commercial blockchain proof-of-insurance app. And as always, startups are charting new paths. Consider London-based iXledger. It’s offering insurance quotes based on risk metrics particular to a given crypto business, and possible asset exposure, legal risks, system outages, and cybercrime. iXledger publishes insurance purchase records on the Ethereum blockchain to bolster investor confidence in this burgeoning area.
Global blockchain adoption is a $2 billion market in 2018—more than doubling its 2017 success.
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