According to a Reuters report, several major insurance companies are exploring offering insurance products that will protect customers against cryptocurrency theft.
Although little attention has been paid to developments in the insurance industry with regard to cryptocurrency-related products, there are already several companies that already offer protection against crypto theft–Mitsui Sumitomo Insurance, Chubb, and XL Catlin, which now offers up to $25 million in coverage per incident.
Head of XL Catlin’s North American crime covering underwriting Greg Bangs told Reuters that “the first challenge for us was to figure out if there was a product here.”
There is certainly no shortage of a market for such protection–the past several months have been riddled with incidences of high-profile cryptocurrency thefts. Just a few days ago, roughly $534 million were stolen from the Japan-based Coincheck exchange. In December, crypto mining marketplace NiceHash was robbed of roughly $63 million; the company that operated South Korean crypto exchange YouBit filed for bankruptcy following the burglary of 17% of its assets.
The Insurance Industry Faces a Huge Learning Curve
However, the insurance industry is facing a plethora of challenges and unknown factors when it comes to its entrance into the cryptocurrency industry–the crypto sector is still so new that there simply isn’t very much data for insurance companies to rely upon for risk analysis and the development of coverage plans.
Bloom Helps DeFi Go Beyond Collateralized Lending with OnRampGo to article >>
The head of the American International Group Inc.’s North American cyber insurance practice for financial institutions, Christopher Liu, told Reuters that the best source of data will come from parallel industries with similar risk profiles; he believes that the plans can be adapted.
Liu added that AIG has been exploring crypto theft coverage since 2014.
Insurance companies will also need to develop a framework for vetting which crypto firms are legitimate. Because the crypto sector is still so unregulated, the presence of illegitimate firms on the scene has been (unfortunately) rather high.
Additionally, insurers will need to gain better understandings of proper security measures utilized by crypto firms in order to ensure that their potential customers are complying to the highest industry standards–following the massive Coincheck hack last week, it was revealed that the exchange’s security practices were not as in-depth as they should have been.
High Costs, Higher Benefits?
Even if exchanges and other crypto firms are on the cutting edge of security innovations, insurance against crypto theft will cost a pretty penny. Ty Sagalow, chief executive of Innovation Insurance Group LLC, told Reuters that crypto coverage is “an expensive product that many companies can’t afford.” Annual premiums are expected to cost roughly two percent of coverage limits; financial firms in other, more established sectors of the financial industry typically pay less than one percent.
However, crypto firms who are seeking to legitimize themselves in the global marketplace may find that the benefits of holding coverage far outweigh the costs when it comes to clients who are hesitant to embrace crypto because of volatility and security concerns.