It is no secret that the cryptocurrency market is still highly risky. And it is not just about volatility, but also about hacking attacks aimed at both exchanges and individuals. Therefore, the situation with insurance of crypto assets is quite acute today. The insurance procedure itself, however, raises more questions than it grants answers. What exactly can we insure? How will the asset assessment process take place? Who can do it?
What Can Be Insured?
The lack of clear regulation and the volatility of many altcoins does not allow such large players in the insurance market, like AIG, to tell the public about their presence in the market and about the creation of reserve platforms for exchanges such as Mt.Gox (which suffered from severe hacking attacks).
Another facet that begs for insurance is investments in unprofitable ICOs and outright scam projects. But direct insurance "against volatility" can be very expensive. In addition, such an enterprise seems almost utopian to some experts. "In principle, the idea of insuring altcoins is interesting, but it is insurance from theft. Here the question immediately arises: how can we prove that the wallet was hacked and the coins were stolen, and not just transferred to another address? The insured event can occur only if the action will be of a massive nature, plus, the statement of the company developing the wallet is necessary. Particular cases of theft cannot be liable for insurance. It is not possible to insure volatility. It is like insuring the ruble against its fall against the dollar. It looks interesting, but with reference to crypto assets, it looks like some kind of adventure," as explained to DeCenter by the co-founder of the Wirex crypto bank Pavel Matveev.
The question about how the assets will be valued is very ambiguous and requires careful study. It is possible that different companies will use different tools, the choice of which will depend on many factors. "If we are talking about crypto assets and wallets, then the valuation is likely to occur at the average exchange rate for a certain period of time. If you evaluate the ICO, then everything is a bit simpler. Evaluation is the same for any project that asks for venture investments from funds," the source added.
The advertising component, which invariably pursues insurance, is also very negatively evaluated by some experts." Insurance for cryptocurrency storage will be a big opportunity. Digital assets are becoming more relevant, important, and prevalent in the real economy and we are exploring product and coverage options in this area," said Christian Weishuber, spokesman for the European company Allianz, to Bloomberg.
Another insurance product may well be the support of technological startups. Insurance support for crypto companies, in fact, abolished standardization throughout the industry as underwriters are fighting to the death for their rewards. This state of affairs may affect the excessive use of loans by partners of their partners. And this, in turn, may negatively impact the representation of investors and consumers about the company: the cooperation of the project with insurance creates the illusion of security of investments.
"Quite honestly, it’s something insurers are aware of and cautious about too. They don’t want an advertisement to say, ‘We are insured with ABC insurance company’ and for it to be inaccurate or misleading. It’s definitely a concern," explained Jackie Quintal, leader of the London-based Aon.
The Brief but Turbulent History of Crypto Asset Insurance
In 2015, BitSecure began offering various insurance products for holders of cryptocurrencies. Insurance for Bitcoin was also released by Coinbase, Inc. and Elliptic Enterprises Ltd.
In November 2016, Mitsui Sumitomo Insurance released a product on the market offering to insure exchanges. It is interesting that the proposal includes both internal and external causes, among which are theft by employees and third parties, cyberattacks, unauthorized access, and system errors. In addition, Mitsui Sumitomo, together with bitFlyer, the Japanese exchange ranked sixth in the world by Bitcoin trading volume, has developed a training program that helps their clients to provide proper security measures.
In general, the question of who should be engaged in insurance of crypto assets is still open. On the one hand, insurance companies need to take part in the formation and evaluation of cryptocurrencies, and on the other hand, the companies directly involved in the crypto industry are the largest expert base for risk assessment. The ideal solution would be joint cooperation of the first and the latter, as it happened with the Japanese Mitsui Sumitomo.
What Should I Look for When Choosing Insurance?
It is not worth choosing an insurance company solely for its promises of fabulous payments and coverage of such losses, as the soaring or falling prices for this or that crypto asset. If the company offers such services, it is necessary to overlook it as there is a high probability that the firm is not oriented to the client's needs in the formation of other insurance products, but aims to attract the maximum amount of money. It would not, however, be superfluous to insure your digital assets against hacking attacks. As the use of cryptocurrencies is becoming more common, companies can start considering the use of these products, even if they do not consider themselves primarily technology companies, since any new wave of technology can cause ripple effects in many industries.