At least four major cryptocurrency exchanges were hacked in 2018:
Coincheck – $500 million stolen.
BitGrail – $195 million stolen.
Coinrail – $40 million stolen.
Bithumb – $30 million stolen.
Did any of them have insurance? Not really.
The $500 million Coincheck hack was one of the biggest in history, but the company ended up reimbursing clients with its own funds.
Bithumb was insured, but not enough to cover the loss.
In other words, cryptocurrency insurance is patchy.
Assume Your Cryptocurrency Is Not Insured
If you are currently holding bitcoin online in a custodian service or exchange, your digital assets are more than likely not insured.
We automatically assume our cryptocurrencies are covered, but the harsh reality is they are not in most cases.
Even Coinbase, the largest crypto exchange in the US, only insures 2% of customers’ crypto funds – those held online, the most vulnerable to hacking. The remaining 98% is stored offline in significantly safer cold storage, but uninsured.
That’s Why Gemini’s New Insurance Is Groundbreaking
The Winklevoss twins recently announced that cryptocurrencies on their Gemini exchange and custody services are fully insured.
It’s a huge step for the cryptocurrency industry as it moves towards mainstream integration.
But what other bitcoin insurance options are out there? Who are the biggest players, and do you need a personal cryptocurrency insurance policy?
Do You Need Personal Cryptocurrency Insurance?
The harsh truth here is that buying bitcoin insurance for yourself is going to be wildly expensive and difficult to secure.
Insurance giant Allianz reportedly offers individual insurance to cryptocurrency investors. But there is no mention of such a service on its website. You’ll have to contact an Allianz broker directly to broker a crypto policy.
And that could be very expensive. One expert claims it would cost $200,000 a year in premiums to insure $10 million in crypto assets. (Roughly twice the cost you’d pay to insure other financial products).
And that’s the rate for crypto companies, not individuals.
Unless you’re a crypto millionaire, you’re better off searching for crypto custody services that are already insured, like Gemini.
Or better yet, keep your crypto off exchanges and custody services altogether. Use your own cold storage and secure backups.
But let’s zoom out a little. Why are so many crypto companies not insured?
Too Much Risk, Too Little Revenue
Because of the fluctuating nature of crypto markets, big insurance companies have sat on the fence in regards to entering the cryptocurrency insurance affray.
There are two key issues here: risk and revenue.
Until recently, the crypto industry mainly consisted of volatile exchanges and startup companies. Most are high-risk and didn’t provide large enough revenues to encourage the major insurance players to get involved.
Put yourself in the mindset of a big insurance company. Given the number of hacked exchanges and failing ICOs, does it make any sense to offer coverage? Of course not.
And if they did offer coverage, the premiums would be so high (to compensate for the risk) that startups wouldn’t be able to afford them.
Times and Needs Are Changing
More and more crypto companies are breaking out, bigger players are entering the arena, and revenues are increasing.
As the industry evolves, there is a large gap in the market for insurance and security.
Ironically, the instability of crypto markets is what has kept major insurance companies away from the industry. However, it’s also the defining factor why it is important that crypto startup companies and individual users need insurance in the first place.
So we are currently in a state of limbo in regards to cryptocurrency insurance. The good news is that chaos is a ladder. With so much interest now in crypto, some insurance companies are starting to take a gamble on the crypto industry.
Biggest Cryptocurrency Insurance Companies
Although cryptocurrency insurance plans are being offered by companies, most are keeping it low and under the radar. But here are a handful of highly-trusted companies now offering cryptocurrency insurance protection.
Gemini Cryptocurrency Insurance with Aon
Gemini recently announced they have partnered with the leading insurers, AON, to provide insurance protection for custodial digital assets.
Aon is a professional and global insurance provider that offers a wide range of insurance protection packages. Their latest partnership with Gemini is changing the game with its crypto coverage that complements the existing FDIC deposit insurance laws.
This might well be the main reason why Aon claims it controls 50% of the cryptocurrency insurance marketplace.
Lloyds Bank/Kingdom Trust Cryptocurrency Insurance
One of the most interesting partnerships lately is between the large-scale banking institution Lloyds Bank and the qualified crypto custodian, Kingdom Trust. As a qualified custodian, Kingdom Trust already stores over 30 cryptocurrency token types. Its crypto storage service is now insured courtesy of underwriters in the Lloyds market.
Although Lloyds seems to be keeping a low-profile on the subject and are treading carefully, their underwriting of Kingdom Trust’s service is not to be taken lightly.
Lloyds also reportedly provides insurance coverage for the 2% of Coinbase’s funds held online.
Chubb is now offering its own Cyber Enterprise Risk Management (Cyber ERM) insurance policy to businesses. It covers a wide variety of cybercrimes including some cryptocurrency issues.
Chubb claims it doesn’t insure exchanges or crypto wallets, but it has paid out claims related to bitcoin mining and ransoms. There is also no mention of individual insurance yet.
Other notable mentions
As explained, insurance companies are still testing the water with crypto assets. Other name players who are now quietly offering cryptocurrency protection are Allianz, XL Group and AIG, although others will no doubt flock to the market over the coming months
What Should You Do Next?
Unless you’re a crypto millionaire, there aren’t many options out there for individual crypto insurance policies yet. However, we are seeing more insurance players offering coverage to crypto companies and exchanges. The door is opening.
Gemini is hopefully the first of many custodians and exchanges to integrate full insurance, and we’ll see more as we move forward.
As a crypto investor, your best course of action is to check with your current crypto exchange or custodian. What level of insurance do they have, if any?
If you’re still concerned about safety, move your funds to a custodian with better insurance. Or move it into your own private cold storage and keep backups.
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