The technology underpinning bitcoin is facing doubt regarding the number of hacking and related incidents of fraud on the rise. While the majority is focused on the astronomical gains and subsequent drops in value, there’s another group of hackers working stealthily to find new ways to steal tokens. As it stands, crypto investors have already lost billions from past hacks, fraud, and breaches on both wallets and exchanges.
However, significant global insurers are on course to start offering protection against the loss of cryptos through hacks. The crypto heist insurance policy will cover instances of theft for companies and exchanges that handle digital currencies between anonymous parties.
Chubb, Mitsui Sumitomo, and XL Catlin are among those currently offering this service, while many others are also looking to provide crypto theft coverage as part of their offerings.
Notably, this insurance news comes after Coincheck, one of Japan’s largest digital currency exchange, lost $534 million in XEM coins to a group of hackers. While the theft was one of the largest in crypto history, the exchange does indeed plan on refunding the lost coins.
Over a dozen similar heists cases took place within the past few years, with some notable hacks like Mt.Gox leading to a complete shutdown of the exchange.
Digital assets are much harder to protect and insure than traditional assets. As a result, the process of scrutinizing the security, storage, and profile of the insured can take several months and result in only a few policies.
Additionally, insurance companies are still uncertain of the complete scope of security measures when it comes to crypto. Most users are not aware, for instance, of the risks of storing their digital currency in hot storage (online wallet); the danger being that funds are much more vulnerable to attack. However, the insurers plan only to cover coins in offline or cold storage facilities. Coinbase, Kraken, and Poloniex all use cold storage to reduce breaches.
In the recent Coincheck heist, the hacked coins were held in hot storage. Such negligence has even earned the exchange a formal investigation from Japanese authorities.
WATCH: Coincheck NEM Hack Full Breakdown by NEM Blocktime News #29https://t.co/7v0ALr89Dq
— NEM (@NEMofficial) January 27, 2018
Since cryptocurrencies threaten current financial norms, banks have been refusing to facilitate a smooth insurance process for digital currencies as a majority are involved in financing companies and giving loans.
Not surprisingly, Metropolitan Bank Holding Corp. has rejected to enable wire transfer for the crypto exchanges. This measure helps reduce concerns of money laundering, crypto scams, and other fraudulent behavior. Similarly, governments are also trying to regulate crypto as recently announced by the Philippines and South Korea.
The Learning Curve
A steep learning curve for insurance companies to get into cryptocurrencies is involved: To insure something, first, they must know and understand what they are protecting. Greg Bangs, head of XL Catlin’s North American Crim Coverage explained that “the first challenge for [his firm] was to figure out if there was a product here.”
Next, the insurance companies still have to bring down the cost of insuring digital assets. As it stands, an annual premium for theft coverage of $10 million would run for $200,000 (two percent). That makes the product expensive for most companies since it is much more than what traditional clients are paying.
All-in-all, a handful of insurance companies, are looking to be pioneers in the world of digital assets. And as the crypto world continues to mature, these firms may have an opportunity to grab hold of potential customers within the crypto world.