The Cryptocurrency business is a highly volatile one, and crypto companies are looking to minimize the risks and uncertainties associated with cryptocurrency trading by looking to insurance firms to provide cover for their business to prevent the re-occurrence of unfortunate past events such as Mt. Gox hack, and the recent attacks on Coincheck, Bancor among others.
For a while now, crypto exchanges have been the target for hackers. Several times, hackers have been successful in stealing tokens stashed away at the transaction. Insurance companies are the way out of this problem by creating a cover for these digital currency companies thereby generating more revenue for their business.
Some insurance Companies are already offering coverage as firms like Allianz, are now offering personal coverage, a spokesperson for Allianz, Christian Weishuber said that:
“Insurance for cryptocurrency storage will be a big opportunity. Digital assets are becoming more relevant, important and prevalent on the real economy and we are exploring product and coverage options in this area.”
Other insurance companies are also offering services to crypto startups like the insurance firm, Marsh & McLennan, which provides complete coverage for companies. There is also Aon, which claims to have over 50% of the market already.
Early February this year, it was reported that firms like Chubb, Mitsui Sumitomo, and XL Catlin were prepared to offer this service, while many other insurance giants are proposing to provide crypto theft coverage as part of their offerings.
This news came shortly after one of Japan’s largest digital currency exchange, Coincheck lost $534 million in XEM coins to a group of hackers this is by some distance one of the biggest heists in cryptocurrency history although the firm has made plans to refund the stolen coins.
This new reform also comes with some challenges, and one is that the premiums for such insurance are usually very high, as much as five times that of traditional insurance, and policies can have so many exclusions as to make them “close to useless.”
Apart from these, digital assets are much harder to protect and safeguard than traditional assets. Consequently, the process of proper investigation of the security, storage, and profile of the insured can take several months and result in only a few policies.
Also, insurance companies are still not conversant with the complete scope of security measures when it comes to cryptocurrency trading. For example, Most users are not aware of the dangers of storing their digital currency in hot storage (online wallet); the reason is that funds are much more prone to attack than when put in cold storage.
However, the insurers plan only to cover coins in offline or cold storage facilities, so the onus lies on the insurance firms to convince costumers to store their digital currencies offline. Insurance firms are planning to affiliate with the growing importance of cryptocurrency, and this is a big step towards assuring the legitimacy of cryptocurrency all over the globe.