Major Insurance Companies Starting To Serve The Cryptocurrency Industry
Major players in the insurance industry are turning their attention to a hot new business opportunity – crypto insurance.
Even though not much is in the public eye, industry insiders have intimated a major shift is in play, a report carried by Bloomberg says.
More and more of the established and reputable companies are taking the plunge by providing tailored products that target risks in cryptocurrency investment.
The clamor that is taking shape has seen big-name insurance providers like Allianz, AIG, XL Group, and Chubb take a serious look at the crypto industry.
It appears that these companies, are taking a very cautious approach as they seek to penetrate the increasingly lucrative, but delicately risky digital asset space.
According to the report published on July 19, the cautious approach is pegged on the fact that crypto is an industry whose reputation has often been likened to the Wild West.
It’s unregulated and things like fraud and mega-heists are common. You don’t have to go far to find major hacks in the past, including that of Bithumb, Binance, and Coincheck.
Another possible factor that has so far put breaks on any major moves for insurers has the 2018 collapse in Bitcoin prices, which at the moment is about 70% down on its value in December 2017.
However, things are shaping up, and insurance companies are turning on the gears and crafting products aimed at protecting businesses within the cryptocurrency industry, such as exchanges, custodians, and payment processors.
Cryptocurrency and blockchain technology is slowly gaining wider acceptance.
It has emboldened a few of the insurers who believe the many challenges and pitfalls will are avoidable. It’s an opportunity that they (insurers) seem intent not to pass.
Allianz’s Christian Weishuber is quoted by the Bloomberg report as saying that “insurance for cryptocurrency storage will be a big opportunity”, referring to custodial insurance.
In fact, the recent CBOE Bitcoin ETF listing application discusses a massive insurance policy to protect the fund’s digital assets.
Two of the top insurance brokers in Aon and Marsh & McLennan have both ascertained that business is picking up pace this year.
Marsh has been reported to have gone a step further by forming a team comprising 10 experts tasked with providing brokerage services to blockchain start-ups.
Aon, on its part, has claimed to be directly involved with about 50% of the cryptocurrency insurance market and continues to see more tailor-made protections that target the rapidly growing industry.
Another insurer, American International Group (AIG), has revamped some of their standard policies by introducing plans related to crypto coverage.
The group has also revealed that it has met players within cryptocurrency and trading sectors with a view to releasing more coverage.
Even potential clients are getting into the mix. For example, cryptocurrency services provider BitGo undertook a trip in May that saw it meet nearly 75 insurers in cities like New York and London.
While the opportunity is there for the underwriters, it has nevertheless emerged that it won’t come cheap.
The premiums involved are said to be much higher than what is charged for ordinary cover against loss or theft. Crypto-related businesses could end up parting with premiums five or more times higher.
Sources close to Bloomberg say that these premiums can often end up being as high as 5% of annual coverage limits.
Furthermore, policies sometimes demand that there be “as many as a dozen underwriters”. They in turn often have to chip in about $5 to $15 million for each of the protections.
What informs the high premiums could be related to the perception that crypto is laden with massive risks.
Perhaps it’s as a result of events like the $532 million heist that hit Coincheck at the beginning of the year.
According to Greg Spore, from U.S firm Marsh, “it’s a new technology, it’s evolving quickly. There are security risks. That’s a big concern.”
Details remain scanty
The shift is in place, but details as to the extent of coverage remain scanty at best. It appears the big-name insurers are reluctant as they continue to weigh the situation.
However, there are a few within the insurance space like Chubb who have intimated that they won’t cater to crypto exchanges as well as wallets.
Others have remained tight-lipped on the plans being put in place.
One of the companies, XL, couldn’t provide any specifics, only stating that it was “being careful when looking at those risks and analyzing them on a case by case basis.”
The lack of details extends to players within the crypto industry itself. An example is the top U.S-based trading exchange and wallet service provider Coinbase.
The platform offers insurance to client funds in hot wallets. It’s thought to be about 2% of total client assets.
However, the firm has never disclosed how far their coverage goes, especially in relation to the assets stored in colds storage.
It’s interesting to see how far this is going to go, given that the underlying technology behind cryptocurrency is blockchain. Yet it’s this technology that is seeking to transform the insurance sector.
The recent partnership between IBM and Marsh provides a good backdrop as they seek to develop a commercial blockchain-based solution to some problems facing the insurance industry.
As more insurers come on board, the expectation is that we’ll see more information being put out there regarding the policies on offer, the level of premiums, and the extent of coverage.