The Era of Insured Crypto! What’s next?
Cryptocurrency has revolutionized the world with its magic of cutting down the cost of transactions as well as the cost of trust by eliminating third parties or intermediaries which has benefited the SME’s and business a lot but there is downside to crypto too. Crypto theft! And this is a leading risk in the industry besides the risk due to volatility.
Cybercrime Costs $600 Billion a Year:
There are many factors that could lead to crypto theft like SIM swapping, data breaches in any form and access to one’s email address and passwords by bypassing a 2FA once the hacker has successfully swapped a SIM. We have seen plethora of cases emerging and some of the high profile cases have caught media attention and are mentioned below.
In a successful SIM swap, Mt. Gox lost eye-popping $460 million to hackers back in 2014. Exchanges have been favorite targets of hackers and a recent Binance hack for more than 7000 Bitcoins worth more than $40M then and more than $80M now and that too in a single transaction made huge concerns among crypto investors. Back in 2016, Bitfinex lost 120,000 BTC and more than $530M were transferred from Coincheck. The lost crypto in the first three Qs of 2018 valued more than $1 billion which was a 250% rise over 2017.
A spokesperson from McAfee firm which provides internet security in an interview to CNBC argued that, “Cybercrime could be viewed as 14% tax on growth when you look at the cost of cybercrime in relation to the worldwide internet economy that is 14 trillion”.
These risks have led crypto users and investors to look for ways to secure their assets in the form of crypto insurance and this is viewed as a lucrative business by firms around as they may charge annual premiums ranging from 1% to 5% of the covered assets.
One of the leading crypto exchange in North America Coinbase has its 2% coins insured with the Lloyd’s of London in hot wallet. To be honest, insurance companies have always had Bitcoins on its radars. Back in 2015, Lloyd’s issued a report which lists risk factors for the cryptocurrency. The firm argued that the establishment of acknowledged security standards for hot and cold Bitcoin storage would help risk management in a marvelous way and the provision of insurance too. The report also mentions many multi-signature wallets, cold storage and server-side security as possible methods to mitigate risk attacks and hacks.
Crypto Insurance Swiss is one such company providing insurance for cryptocurrency like Bitcoin, Litecoin, Ethereum and many more coins. They charge you with 10% annual premium of the crypto value you insure with them and it is a big business to be honest. There is however a minimum and a maximum amount of crypto that you can insure and they take care of everything else.
Many of the experts preclude eye-popping rise in the value of Bitcoin and other coins as we draw near Xmas. The huge speculation is one reason behind crypto rise and the hack news is another reason for Insurance Boom and more and more people want to insure their assets out of fear of losing them all to hack so giving a 10% to the insurance provider is better than losing it all right!
Coalition CEO Joshua Motta argues that cryptocurrency insurance marker was next to nothing couple of years ago and today it has around $500M in premium revenue. This means there is enough room for the industry to grow because we have around $300b in crypto assets and hardly $1b of it is insured so there is a big disequilibrium between demand and supply.
The market is expected to grow at a much faster rate in United States. According to Ty Sagalov (who is the founding member of famous licensed insurtech company Lemonade in USA,
“I see this market as the next cyber. It will grow to a multi-billion-dollar premium market within the next five to ten years.”
Insurance companies that serves digital exchanges:
Following are few of the insurance companies openly advertise their service provision for cryptocurrency exchanges.
- Marsh & McLennan. According to CCN, Marsh & McLennan has a team of 10-persons that oblige to the needs of blockchain startups.
- Aon. Gemini made news when it announced that itprovides crypto insurance through Aon. Aon is a big player and claims it has founded 50% of the market for crypto insurance.
- American Insurance Group. In an announcement by Reuters, AIG, still in an “exploratory phase”, is going to create insurance products for crypto exchanges.
- XL Catlin. XL Catlin became BitGo’s insurance provider in 2015 and was the first firm of its kind providing crypto insurance.
Marsh & McLennan is however the largest insurance brokers in the world has organized a very generous and broad insurance scheme for a crypto custodian called KNØX. KNØX is based in Montreal and with its cold storage service, is courting hedge funds and wealth managers. The cryptographic private keys in its cold storage service are kept offline. Insurance by Marsh cover its clients in case of internal collusion or external theft up to full worth of their crypto insured. This provides additional peace of mind.
Besides the firms serving crypto exchanges, there are crypto insurance firms for individuals too. People who do not trust security of the exchange consider individual crypto coverage. Allianz, Noble Bitcoin and Etherisc (innovative decentralized protocol) are some examples.
Not so much grown for the time being, cryptocurrency insurance is making crazy news due to increasing regulations thanks to the firms like BitGo which has insured crypto worth $100 million by Lloyd’s and famous exchanges like Coinbase which has been in talks to launch its own Insurance company with famous insurance broker Aon.
According to Hustwitt, in the past six months, there has been a rise in the insurance circle covering digital assets to mitigate the risk of losing value due to volatility. The mouthwatering and lucrative opportunity to make money is attracting more and more carriers to get involved in the business. At a particular time, the value of the overall size and capacity will rely on risk by risk basis. This being said, there is an upward potential of $750M to more than a billion dollar in potential insurance capacity that is available across financial institutions insurance firms.
But the crypto insurance business is super pricy and according to Bloomberg, the crypto insurance business could be 5x expensive compared to the typical insurance business. BitGo started insurance coverage in 2015 but dropped it the next year arguing it was too expensive. Still there are many companies around providing the service and claiming they cover your assets but you need to be vigilant about what they do not cover like your 2FA.
It however looks like the situation is changing as the crypto circle expands more and more with the arrival of great projects to the market. Keeping this in mind, insurance giants are trying to design products and services that people in crypto need the most to stay safe and grow.
