Crypto Insurance Market To Grow, Lloyd’s Of London And Aon To Lead (#GotBitcoin?)
The cryptocurrency insurance market is expected to grow at a faster rate if United States regulators provide more regulatory clarity, according to industry experts. Crypto Insurance Market To Grow, Lloyd’s Of London And Aon To Lead (#GotBitcoin?)
As Forbes reported on Sept. 5, CEO of San Francisco-based cybersecurity agency Coalition, Joshua Motta suggested that the market for digital currency insurance is now worth between $200 million and $500 million in premium revenue. He expects the market to outpace the current 20% to 25% expansion rate of the cybersecurity insurance sector.
Lloyd’s of London, the world’s leading insurance market providing specialist insurance services to enterprises, seems poised to become one of the major players in the crypto insurance sector following April news of Coinbase revealing insurance coverage for its hot wallet crypto holdings, reportedly covering a $255 million limit via Lloyd’s.
“The Next cyber”
According to Eric Boyum, head of the technology insurance brokerage arm of Aon — an insurance broker that purportly occupies 50% of the crypto-insurance market — the crypto market insurance sector would grow even faster once U.S. regulators clarify whether digital assets are deemed securities and should comply with the same laws that govern public companies.
Commenting on the issue, Ty Sagalov, insurance industry veteran and founding member of the first licensed and regulated insuretech company in the U.S. Lemonade, said:
“I see this market as the next cyber. It will grow to a multi-billion-dollar premium market within the next five to ten years.”
Crypto Goes Into Insurance
This summer, Coinbase was reportedly looking to launch its captive insurance company in partnership with Aon. Such a solution was expected to allow the company to keep the money that would be normally spent on the insurance premium, reportedly nearly all Fortune 500 firms maintain captive insurance companies.
Also, Aon will reportedly provide crime insurance coverage for institutions using Metaco’s SILO cryptocurrency asset infrastructure solution for hot and cold storage, which implements hardware security module-based technology.
UK Startup Launches Crypto Insurance, 24/7 Bitcoin-Monitoring Service
Cardiff-based cryptocurrency insurance startup Coincover has launched an insurance policy covering theft and loss.
Local news outlet Whales247 reported on Sept. 24 that this is “the first and only service to guarantee digital funds held online will not be lost or stolen.”
Coincover’s service reportedly monitors the wallet at all times and issues warnings in case of suspected theft, recovers funds in case of private key loss, manages key backups, provides cash replacement value in case of theft, and checks for any suspicious activity.
Making Crypto Less Risky
Furthermore, the startup covers over 100 different crypto assets and the company has been invited by the UK’s Department for International Trade as one of the eleven insurance technology companies to share expertise in the Silicon Valley market. Coincover co-founder David Janczewski commented on the development:
“Cryptocurrency ownership is growing fast and becoming more mainstream, but it can still feel like a risky investment. Virtual currencies, by their very nature, are a new concept for many.”
Janczewski also notes that cryptocurrencies have been attributed to crime and scandal since the start as well as hacks and thefts. These are the issues his company is trying to solve, he explained.
As Cointelegraph recently reported, according to industry experts the cryptocurrency insurance market is expected to grow at a faster rate if United States regulators provide more regulatory clarity.
Meanwhile, cryptocurrency insurance is becoming a more prevalent service in the industry, namely for custodial services. For instance, earlier this month Bitcoin (BTC) futures firm Bakkt announced that deposits held in its warehouse are protected by a $125 million insurance policy.
In Rare Deal, Crypto Custodian Wins Insurance On Full Value Of Client Assets
Marsh & McLennan, the world’s largest insurance broker, has arranged an unusually generous and comprehensive insurance program for a new cryptocurrency custodian called KNØX.
Unveiled Tuesday, Montreal-based KNØX is courting wealth managers and hedge funds with its cold storage service, in which the cryptographic private keys to a wallet are kept offline. To give potential clients additional peace of mind, the insurance arranged by Marsh covers them in case of external theft and internal collusion, up to the full value of their holdings.
By contrast, often insurance policies covering crypto assets are shared across multiple clients of a custodian, explained Alex Daskalov, co-founder and CEO of KNØX. For example, a custodian holding $1 billion in assets, and advertising a $100 million insurance policy may only be 10 percent insured, in which case the customer is given a false sense of security, Daskalov argued.
If the customer were to experience a total loss of $100 million they would only be reimbursed $10 million.
The Knøx Program Was Developed With Marsh To Remove Ambiguity Of This Sort, Daskalov Told Coindesk:
“Often we see people purchase an insurance policy and then hold in the aggregate funds well above the limit of that insurance policy. So for us, it was an important guarantee that when a customer is on-boarded to our platform, the full value of their assets is insured.”
That’s not to say the cover is limitless. “There is, of course, an upper ceiling,” Daskalov acknowledged, without saying precisely what it is.
Asked if KNØX was ready to hold and insure north of $100 million for any of its customers, Daskalov said this would “not be a problem.” (To put that figure in context, until recently, the largest amount of insurance cover heard of in the crypto space was when Coinbase was reported to have up to $255 million).
Jennifer Hustwitt, senior vice president at Marsh, told CoinDesk the insurance cover being offered with the KNØX solution was led by insurance company Arch and supported by various syndicates at Lloyd’s of London.
KNØX recently raised $6.2 million in funding led by Initialized and iNovia, with participation from Fidelity Investments Canada, FJ Labs, and Ferst Capital.
Daskalov said that for custodying and insuring 100 percent of a customer’s assets, KN0X would charge a fee starting at 1 percent of assets and work down depending on how much business was being conducted. To get a customer’s assets out of cold storage in order to trade would normally take an hour, although the service level agreements (SLAs) are more conservative, he said.
While scarce, crypto insurance cover is popping into the headlines with increasing regularity, thanks to the likes of blockchain security firm BitGo touting $100 million cover from Lloyd’s and Coinbase exploring new avenues with the number two insurance broker Aon, which is also working with custody providers Anchorage and Volt.
Hustwitt said there has been a net expansion of insurance capacity available for digital asset risks in the past six months.
Some carriers are starting to participate in programs who previously had not and this is edging up the capacity and size of insurance deals, she said. “At any given time the amount of overall capacity will depend on a risk-by-risk basis. Having said that, there is upwards of $750 million to $1 billion in potential insurance capacity available across specie and financial institutions insurance markets.”
A Caveat Would Be That The Carriers Participating And The Capacity Changes On A Month To Month Basis, Said Hiustwitt, Concluding:
“Our working metric right now is up to a billion. We break new ground with every deal we do.”
Ledger’s Vault Scores $150 Million in Crypto Insurance From Lloyd’s Syndicate
Ledger, the creator of the iconic Nano hardware wallet, is wooing institutional investors to use its technology to custody cryptocurrency for themselves with the help of big-name insurance broker Marsh.
Marsh has arranged a $150 million insurance policy from Lloyd’s of London syndicate Arch for users of the startup’s Ledger Vault technology platform, the companies announced Thursday.
The move is another sign that the insurance industry is gradually becoming comfortable writing coverage for digital assets – widely considered a prerequisite for institutional investment.
In the past year, quite a few crypto custodians have trumpeted insurance cover in the hundreds of millions. Unlike those firms, Ledger Vault is not a custodian; rather, it provides tools for investors to store their own crypto.
“We didn’t have to do this. We are buying insurance for the Vault platform at no additional cost to customers of our platform,” said Demetrios Skalkotos, global head of Ledger Vault.
Ledger’s policy covers third-party theft of private keys in the event of a physical breach of a hardware security module (HSM) in one of its data centers. Also covered is the entirety of the on-boarding process for clients which involves the generation of private keys within the company’s HSMs, as well as collusion within Ledger leading to insider employee theft.
The policy does not, however, cover theft via a third-party remote hack of the type reported fairly regularly at crypto exchanges around the world. The Ledger Vault solution itself is meant to prevent this type of hack by isolating private keys from the internet.
Firms using Ledger Vault set up their own transaction controls and governance procedures. The firm is trying to move away from the frame of reference of online “hot” wallets and offline “cold” ones, calling itself “temperature-agnostic.”
On top of the new insurance policy, Ledger Vault clients will be well-placed to arrange their own dedicated primary insurance facilitated and “fast-tracked” by Marsh and Arch, the companies said.
“Clients that are part of this insurance program for Ledger Vault have the ability to obtain a dedicated limit that is dependent on the assets held on the Ledger Vault platform,” said Jennifer Hustwitt, senior vice president at Marsh & McLennan Companies, the insurance broker’s parent. “It would be separate from the $150 [million] that Ledger is purchasing.”
James Croome, vice president of specie at Arch, said in a statement that the syndicate “spent over six months working with the Ledger Vault team to develop a customized offering for their clients.”
Ledger has sold 1.5 million units of its flagship consumer product, the Nano, a device for storing private keys to crypto wallets.
This Blue-Chip Crypto Insurance Consortium Lacks One Thing – A Sizable Loss
In a rare interview, London-based insurance firm Arch says a sizable but containable loss would demonstrate how well its $150 million crypto storage policy would react.
Only a handful of cold storage crypto policies have been written at this time; high-net-worth individuals are the main driver for the business.
Lloyd’s of London has set up a crypto subgroup within its Product Innovation Facility, which includes mega-broker Marsh.
Marsh says it has a hot wallet crime cover product in the pipeline.
An insurance company saying it hopes to pay a sizable claim sounds like a turkey looking forward to Christmas.
But that’s exactly what James Croome, fine art and specie underwriter at Arch Insurance International, says he wants his firm to do. Just to show that it can.
Arch is one of the few underwriters willing to insure cryptocurrency exchanges and custodians against the theft or loss of customer funds. London-based Arch Insurance International, which works with a number of big-name brokers offering crypto cover, has yet to pay out for any losses in this relatively new market.
If someone does manage to pull off a heist of cryptographic keys kept offline in cold storage, Arch will get a chance to demonstrate it’s good for the money, said Croome, who works out of London.
“I would like there to be a containable but sizable loss,” he said. “Because that would give evidence to our potential clients as to the service we can provide, the speed at which we will pay the claims and remind people who have bought coverage that it does work appropriately.”
Insurers have years of experience in covering specialized assets in the traditional world, whether that’s fine art or the regulatory requirements to protect financial services firms. But they feel less secure with crypto because there is a shortage of data for firms to model policy rates.
In response to this, Croome helped create a consortium, including mega-broker Marsh and global law firm Norton Rose Fulbright, to offer cold storage cover for crypto assets.
Released in September, Blue Vault, which is solely owned by Arch, provides limits of up to $150 million and covers the loss of digital assets due to internal and external theft (via direct access to the storage media as opposed to remote hacking attacks) and including employee collusion. Blue Vault also covers physical damage or destruction of private keys from fires, floods, earthquakes and other catastrophic events.
Ankur Kacker, vice president and specie expert on Marsh’s Digital Asset Risk Transfer (DART) team, said: “We have placed four policies for Blue Vault as of now, all in the last seven months.”
Marsh, the world’s largest insurance broker, recently announced a deal with Ledger Vault, the institution-focused arm of Ledger, the well-known hardware wallet provider for $150 million cold storage cover; Marsh is working in a similar way with crypto custodian KNOX.
Arch chose to work with law firm Norton Rose Fulbright on the crypto policy because it wanted precise policy wording. Ambiguous language is a pet peeve of Croome’s.
“My biggest annoyance with the specie market is the existence of ambiguous wordings, which is why I chose to work with a legal firm with a track record in this space,” he said.
Norton Rose Fulbright has given presentations in New York, Bermuda and to the London Market to help “educate insurance markets and develop set the market and standards for cold storage of these assets,” said Nicholas Berry, a partner at the law firm. The firm also helped Lloyd’s of London with its market guidance on underwriting digital assets.
Norton Rose Fulbright enlisted the help of Peter McBurney, Professor of Computer Science, King’s College London and a consultant with the law firm, to spell out technical aspects of key management and crypto storage and create appropriate policy wording. This is an instance where the London Market has led other international markets, said Berry.
“Going back to 2018, there has been a mismatch between supply in terms of underwriting capacity and demand for those wanting cold storage or even hot crime-type cover. Some of the big brokers have been pushing the supply side to provide more cover in terms of higher limits, wider cover,” he said.
Crypto insurance is widely seen as a prerequisite for greater institutional involvement in the market. But Croome is wary of companies offering insurance policies as a marketing ploy.
“We tend not to look at insureds that are looking for a chicken-egg scenario. They feel they don’t have a current revenue stream but are hoping the existence of insurance will help speed up the point at which assets come into custody and therefore increase their revenue,” he said.
As well as Marsh, Arch has been working with Aon, the number two broker by size. Other brokers known to be exploring crypto include Arthur J. Gallagher and Paragon.
But Croome says that for now he is shying away from really broadening out his broker network for crypto.
“I think I will keep to the ones that have shown comprehension of that which we like. They understand that and therefore they can filter out the sort of things we seek to avoid,” said Croome.
Insurance companies like Arch bring in third party specialists to examine physical vault security and do the same to understand and communicate the risks around the storage of crypto. “I wouldn’t consider myself capable of valuing a Dutch master [painting], knowing if it was genuine or a fake.That’s not my job,” said Croome.
Peter McBurney, who divides his time between academia and advising Norton Rose Fulbright’s clients on technology matters, does the equivalent of physical vault checking for the IT system that would create and store the private keys.
McBurney estimates there are still reasonably few policies written in London covering crypto cold storage, and the same in New York, although this number is increasing. “It’s still very early days, it is almost virgin territory.”
McBurney said ultra-high net worth individuals or hedge funds who already have relationships with custodians for storage of fine art or gold bullion are driving the market for crypto insurance.
“They are going to their existing physical custodians and saying, ‘Can you also store our private keys?’ So the custodians are going to insurers and saying, ‘Can you insure us to store these private keys?’ and that’s where a lot of the business has originated. It’s customer-driven from the individuals and the hedge funds who have large crypto holdings,” he said.
Lloyd’s of London, the centuries-old insurance market, has realized there are new revenue streams to be had with crypto. Its underwriters have launched the Product Innovation Facility, which spans some 24 markets and has over $100 million of capacity. The facility includes a crypto subgroup, where Marsh has a representative.
A spokesman for Lloyd’s said it’s too early for any on-record comment from the crypto subcommittee at this time. Marsh also did not comment on the group’s purview.
The group will likely be looking beyond cold storage to include crime bond markets; E&O (Errors and Omissions) insurance; D&O (Directors and Officers) and a general smorgasbord of potential product offerings to the digital assets world, according to sources close to the Lloyd’s market.
Hot And Cold
The risk relating to crypto held on exchanges and in wallets connected to the internet is a very different animal from vaulted cold storage.
To deal with losses from third-party hacks, most of the large crypto exchanges simply self-insure, holding large amounts of bitcoin locked up for such occasions. Having battled it out in the market for some years, people like Binance chief “CZ” Changpeng Zhao or Kraken CEO Jesse Powell see insurance for hot wallets as a fundamentally flawed concept.
Arch is not looking to enter the hot wallet space any time soon. However, Croome said he can see ways the crime market could interplay with the specie world.
“We will often take an excess layer, the larger chunk of capacity above the crime policy, to very high exposures but on a much tighter coverage. They will take much broader coverage with much smaller limits,” he said.
Marsh’s Digital Asset Risk Transfer team has clearly been pursuing its own plans regarding a hot wallet product. Quizzed on the subject of hot wallet coverage, Kacker said:
“At this point in time, I don’t want to let the cat out of the bag. But I can say it’s in the pipeline.”
Bittrex Takes Out Record $300M Insurance On Crypto Held In Cold Storage
Bittrex has insured digital assets held in its cold (or offline) storage to up to $300 million, the highest coverage yet offered by a cryptocurrency exchange.
The company announced the news Thursday, saying it has obtained digital asset insurance that will protect users’ holdings in cases of “external theft and internal collusion.”
Bittrex CEO Bill Shihara said the cover, which has a limit of up to $300 million, offers “peace of mind” and would show clients the exchange is “committed to prioritizing security throughout all of our decisions and forward-looking blockchain technologies.”
The insurance was underwritten by Arch Syndicate 2012, which provides specialized insurance for corporations. The policy was approved after the exchange demonstrated its internal security and compliance protocols, and was supported by other syndicates based out of Lloyd’s of London, one of the world’s largest insurance markets.
The term “external theft” is likely to mean a theft via a physical intrusion into Bittrex’s crypto vault, as cold wallets are not generally vulnerable to hacking. The cover may be similar to Arch’s Blue Vault, which provides limits of up to $150 million and covers the loss of digital assets due to internal and external theft (via direct access to the storage media) and also includes employee collusion.
CoinDesk has contacted the exchange to clarify the cover more precisely.
Sarah Downey, the co-leader of the Digital Asset Risk Transfer (DART) team at Marsh, the insurance broker that assisted Bittrex in drawing up the policy, said: “Insurance plays a critical role in the growth and development of any business, including those that work with blockchain technology and digital assets.”
Insurance coverage is a growing trend among businesses that hold users’ cryptocurrency. Custodial solution KNØX has insurance, also from Lloyd’s, which covers losses of up to $100 million. The Winklevoss brothers created their own insurance company earlier this month to guarantee losses up to $200 million for Gemini exchange users.
Coinbase previously held the record for the largest insurance coverage in crypto, insuring against third-party attacks of up to $255 million for digital assets held in the exchange’s hot wallets. With Bittrex’s news this week, the bar has been raised by a cool $45 million.
Crypto Insurance Market To,Crypto Insurance Market To,Crypto Insurance Market To,Crypto Insurance Market To,Crypto Insurance Market To,Crypto Insurance Market To,Crypto Insurance Market To,Crypto Insurance Market To,Crypto Insurance Market To,Crypto Insurance Market To,Crypto Insurance Market To,Crypto Insurance Market To