US-based crypto exchange Coinbase is considering to set up its own insurance company to protect its funds from loss or hack, according to a Coindesk report.
The digital asset exchange is in talks with Aon, a London-headquartered insurance company, to establish a captive insurance subsidiary.
A usual thing, but new to crypto
A captive insurer is an insurance company set up and wholly owned and controlled by the insureds. These type of insurers are very common among major companies as they reduce cost and increase access to the reinsurance market.
Per a December 2018 article on CPA Journal, all Fortune 500 companies along with many mid-sized corporations have established captive insurers.
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According to the publication’s sources, Coinbase is taking this step due to the limited number of insurers for crypto-related businesses and the high cost associated with them.
Registered with Lloyds’ of London, Aon is one of the few insurance brokers providing services to crypto businesses. It already has ties with Coinbase as the exchange bought insurance with coverage up to $255 million to secure its hot wallets.
Self-insurance – a common practice among crypto companies
Due to the lack of insurers in the market, many crypto platforms are self-insuring themselves by creating rainy day funds to cover possible losses. However, as these funds are not regulated, the management often gets tempted to utilize them for other purposes.
Jessie Powell, the CEO of Kraken, earlier revealed that the exchange set aside over $100 million to protect its clients’ stored funds against losses or hacks. Singapore-headquartered Huobi also revealed that it has 20,000 Bitcoins stored in reserve fund to protect the claims of its clients in case of any theft.
Though neither Coinbase nor the London-based insurer officially admitted anything, an executive from Aon confirmed Coindesk that it helped in creating a captive insurer earlier this year for another crypto-based company.