What is the Crypto Insurance Industry and How Does It Work?
Cyber risk insurance, or “crypto insurance,” covers financial damages caused by hacking attempts. Most bitcoin trading platforms offer protection on customer deposits in the event of theft or hacking.
Here, we’ll discuss crypto insurance in depth, explaining how it operates and outlining the scope of its protections. If you’re interested in learning more, keep reading!
Crypto Insurance: A Brief Overview
Lloyds of London was the first insurance company to provide crypto liability insurance with limits as low as £1,000 (about $1,353) Insurance against the loss of bitcoin stored in an electronic wallet, developed in collaboration with the Lloyd’s syndicate Atrium and Coincover.
>> READ: Learn how to make money online
The coverage cap on these policies is adjustable according to the rise and fall in the value of cryptocurrencies. That is to say, no matter what happens to the value of the underlying asset throughout the policy period, the insured will always be compensated for its replacement cost.
However, because to the lack of official backing, cryptocurrencies are not recognized as legal cash in the United States. For this reason, Bitcoin, Litecoin, and Ethereum do not qualify for the safety nets provided by the FDIC or the Securities Investor Protection Corporation.
How Does Crypto Insurance Operate, and What Is It?
In the United States, conventional securities holders, such as those who invest in bonds or stocks, often receive insurance protection from the federal government or private insurance plans. American crypto investors, however, do not have the same legal safeguards.
There is a need for a means through which cryptocurrency owners may safeguard their holdings, and this is where crypto insurance comes in.
The need for bitcoin insurance, especially in the case of theft, is rising rapidly at the present time. However, as reliable risk assessments become more difficult to do owing to a lack of unified laws within the crypto-insurance market, the underwriting process becomes the largest problem for insurers. Some younger, more progressive firms have been more proactive in this area, but for the most part, initiatives like Stateside are still more of a “dipping toes into the water” than a full plunge.
How therefore can you be sure that your bitcoin is secure since the still-evolving market is so prone to volatility?
Companies like Gemini Crypto Insurance may be able to help in this regard. Head of Risk at Gemini in New York Yusuff Hussain said, “To date, insurers have been hesitant to insure the crypto industry due to the large number of high-profile hacks that have resulted in catastrophic losses over the years, and the poor security standards, internal controls, policies and procedures that have unfortunately characterized much of our industry.” Due to the high cost of premiums required by the few insurers willing to cover the sector, many cryptocurrency exchanges and custodians have either I been unable to secure insurance or (ii) avoided it.
Gemini, a New York trust business, “is certainly a safe and secure exchange and custodian where consumers may purchase, sell, and keep digital assets in a regulated, secure, and compliant way,” we were able to convince insurers.
The specifics of this coverage will be determined solely by the firms who opt to underwrite and insure the underlying digital assets.
A firm like Coinbase Crypto Insurance, for instance, may advertise itself as follows: “We are constructing the crypto-economy — a more fair, accessible, efficient, and transparent financial system powered by crypto.”
Our journey began in 2012 with the revolutionary notion that Bitcoin transactions could be simple and safe for users everywhere. You may now utilize our secure and user-friendly platform to participate in the growing crypto-economy.
They aren’t taking it lying down, either. Over 100 nations are represented by their 73 million verified users, 10,000 recognized institutions, and 185,000 ecosystem partners. They also boast a whopping $255 billion in assets.
Now, this mechanism is both elegantly straightforward and surprisingly nuanced. Although virtual currencies are not recognized as legal cash in the United States, the fiat currency used to buy them is. The insurers will consider the type of money used to purchase the digital asset as part of the overall risk portfolio when considering whether or not to underwrite and accept the insurance policy.
Which Crypto Risks Don’t Get Covered by Crypto Insurance?
Again, this is very dependant on the insurer, but in most cases, the insurance will not cover the actual loss or damage to hardware or the unauthorized transfer of bitcoin. In addition, it offers no security in the event that the asset’s underlying blockchain is ever compromised or fails.
Is Crypto Insurance a Good Idea?
To begin, governments and regulatory agencies will have an effect eventually even if cryptocurrency’s creators want to avoid regulation like the plague. According to a recent research by the respected European think tank CEPS, “The EU is proposing a uniquely specialized framework for crypto-asset providers in the EU under the MiCA law, the first international bloc to do so.” If the EU passes this legislation, only licensed providers will be able to distribute cryptocurrency and run cryptocurrency exchanges within the EU.
Consequently, in the coming years, insurers will seek greater regulatory certainty before expanding coverage in order to achieve more competitive pricing, and they will need to do it relatively rapidly.
Insurers and yes, even bankers (sacre bleu!) will need to join in on the action if they want to take part in a market that will only expand and become more lucrative since digital assets are hardly a new phenomena and if we’re going to include crypto under that umbrella term (and we do).
The question is why insurers are so hesitant. Part of the blame for this shift lies with the dynamic nature of the regulatory environment. A South Dakota trust firm was awarded a national trust bank charter by the Office of the Comptroller of the Currency (OCC) in January of last year. When this happened, it established itself as the first US-based bank dealing only with digital assets. Government backing and insurance may eventually need to follow suit, which offers some intriguing issues related to inheritance and capital gains taxation.
The Securities and Exchange Commission (SEC) has joined the fray, so to speak, by providing guidance on how broker-dealers must function as custodians of digital asset securities without running afoul of regulators.
Is It Possible to Acquire Individual Crypto Insurance?
Yes, albeit it’s more complicated than just saying one word. According to Brian O’Connell, an insurance analyst at Insurance Quotes, “most crypto assets are presently not covered by insurance, and that is owing to the relative immaturity of the cryptocurrency sector.”
More so than private investors, bitcoin exchanges are anticipated to have the greatest share of the insurance market for digital assets. If you want to know whether or not your platform provides protection for its users who make purchases of cryptocurrencies, you’ll have to contact it directly.
Why is Cryptocurrency insurance important?
According to a fascinating post on cryptocurrency insurance written by AON, over $1.3 billion worth of cryptocurrency has been stolen from exchanges since the first Bitcoin block was generated in 2009. This amounts to an average of $2.7 million lost daily in 2018. As a result, everyone who want to own digital assets should consider purchasing insurance.
Of course, thieves have recognized the limitless potential in the quick and easy transfer of large quantities of money. The only way to get money is by committing a theft, and there are, of course, restrictions on how much may be stolen at once. Furthermore, currency may be tracked or, as with the robbery of a Northern Ireland bank’s vault a few years ago, reissued with a new design, rendering the old ones unusable and illegal.
Regarding cryptocurrency, a potential thief only has to break into the essential data of a cryptocurrency holder to digitally transfer as much as they want directly into their anonymous account.
To choose the finest crypto-insurance company, you’ll have to do some research on your own time. AON cryptocurrency insurance is making headlines, but Lloyds appears to be at the top of the list. Coincover is another British firm offering several types of insurance that you should investigate.
Putting Money Into Crypto Insurance industry
It is important to keep in mind that most bitcoin businesses are startups or exchanges. The market is too small to provide significant income for the insurance sector at this time. However, even the largest cryptocurrency exchange in North America, Coinbase, only has 2% of its coins guaranteed by Lloyd’s of London.
Intriguingly, some of these coins are kept in “hot storage,” or internet-connected places, while others are kept in “cold storage,” or offline locales. This makes it extremely difficult to verify whether or not they are actually covered by their chosen insurance.
There’s no denying that cryptocurrency and other digital assets will alter our relationship to and perception of currency. How we plan for our financial future is likely to be affected by them sooner rather than later.
However, what about personal crypto insurance? Some businesses are adapting to offer a private crypto insurance policy among their services, although the coverage and premiums vary greatly amongst providers, and digital assets are not yet insured by the federal deposit insurance corporation.
Doing so is risky, therefore we recommend beginning on a modest scale. Don’t get duped by “too good to be true” promotional deposits that promise enormous rewards; instead, build your portfolio carefully and slowly utilizing reputable exchanges.
In 1688, Lloyd’s of London began protecting British merchant maritime enterprises from piracy and natural disasters like shipwrecks. It makes perfect sense for them to push insurance further into the future. Even if it seems like Europe and Asia have a leg up, the recent passionate support of Bitcoin by Elon Musk means that we live in very exciting times.