Korean Insurance Company Considers Offering Cryptocurrency Hacking Insurance
Korea’s “The News ASIA” said Hanwha General Insurance will start a hacking insurance service for cryptocurrency exchanges that are being targeted by cybercriminals who attempt to steal cryptocurrencies. Negotiations between reinsurance companies and exchanges will begin in October.
First Insurance that Covers Damage from Personal Information Leaks to Digital Asset Losses
Several exchanges including Korea’s Bithumb were hacked by criminals in 2018, resulting in the loss of about 730 million dollars (about 80 billion yen). As of 2015, Hanhwa Insurance is a mid-sized insurance company with approximately 5.5 trillion won in original insurance premiums and approximately 11.8 trillion won in assets.
The insurance premium for hacking insurance provided by Hanwha Insurance is likely to be based on the risk of the particular exchange. The size of the risk is determined by the insurer and the reinsurer in cooperation with the exchange. Although the type of hacking insurance currently provided in South Korea is limited to compensation for leakage of personal information, Hanhwa Insurance is gaining attention as being the first to compensate damages caused by the loss of digital assets as well as damages resulting from that loss.
Non-mandatory Voluntary Independent Insurance Negotiations with Exchanges to Begin in October
At the end of August, the Korean Block Chain Association (KBA) signed an agreement with Hanwha Insurance on the launch of a new hacking insurance. Both of them discussed product development. Korea, to date, has no law stipulating what kind of hacking insurance exchanges are required to have.
Some exchanges such as UPbit are limited to signing cyberspace insurance covering personal information leakage with the Koreas Block Chain Association (KBA). In addition to the fact that it is difficult to expand the insurance market until it creates a large insurance to cover losses resulting from hacking, if the exchange itself does compensate well enough, they will be reluctant to obtain insurance.
A Hanhwa Insurance spokesperson said, “We are planning to begin individual negotiations starting in October. It will most likely be a voluntary insurance product rather than a compulsory insurance product. Until this insurance is offered, coordinated consultations between insurance companies and exchanges will be necessary.”
Strict Application of Security Standards is Essential until Realization of Guarantee
The new hacking insurance will be a big step in achieving strict security standards set by the exchanges. If hacking insurance is compulsory or if the industry accepts it, exchanges that want to stay profitable must take measures to reinforce platform security to keep insurance premiums as low as possible.
If the insurance is not excessively expensive or if it is not below the standard amount of compensation, it is possible that all exchanges will purchase the insurance products. However, under current law, insurance is not mandatory. Therefore, exchanges are not sure whether they are willing to join unless insurance is mandatory. Conversely, an exchange that is willing to subscribe to insurance will have to pay attention applying strict security on platforms and wallets.
Difficulties Ahead for Insurance Negotiations?
The news of a new insurance product is tied in with the fact that several exchanges were hacked in 2018. Bithumb, a major Korean exchange, suffered a loss of about 3.5 billion yen in June. In fact, Bithumb was hacked in 2017 as well. In June, Coinrail, a smaller platform, was also hacked and lost 37 million dollars.
In the history of cryptocurrency trading, the biggest theft is the one involving the Japanese exchange Coincheck, which lost 523 million NEM (the equivalent of about 58 billion yen at that time) on January 26, 2018. One month later, Italy’s BitGrail was robbed of $187 million worth of NANO coins. By the way, compensation for Coincheck’s losses in Japan are taxable. Negotiations on compensation for Korea’s insurance product are sure to face many challenges.
