As the crypto industry continues to expand and thrive, so does the need for robust insurance coverage. However, crypto insurance providers face significant challenges in assessing and underwriting the risks associated with this dynamic ecosystem. In a world where billions of dollars are stolen annually, crypto companies and individuals find it difficult to secure comprehensive insurance. This article explores the complexities of insuring crypto platforms, individuals’ barriers, and the potential for traditional insurance to learn from the crypto sector.
Last year alone, crypto-related thefts reached a staggering $3.9 billion, a 22% increase from the previous year. This rise in hacks and exploits has raised concerns about the security of digital assets, leading to an urgent demand for reliable insurance coverage. However, Raymond Zenkich, president of cryptocurrency insurance firm Evertas, highlights the intricate nature of assessing crypto platform risks. Initial underwriting involves analyzing over 2,000 variables across 20 risk areas, significantly focusing on key management and storage methods.
Recent incidents, such as the hot wallet exploit on Bitrue, further underscore the importance of evaluating storage risks. While the compromised hot wallet held less than 5% of the exchange’s funds, the incident highlights the need for a comprehensive risk assessment. Zenkich explains that crypto insurance providers meticulously examine numerous business, technology, and operational variables before determining the appropriate premium. This detailed approach ensures that insurers can justify the risks they undertake.
Despite the growing need for crypto-insurance, individuals often face challenges in securing coverage. Adrian Przelozny, CEO of Australian crypto exchange Independent Reserve, points out that insurance providers are reluctant to cover individuals who don’t hold their assets on exchanges. Proving asset loss without a custodian’s involvement poses significant hurdles. To bridge this gap, Independent Reserve offers its customers the option to secure 100% insurance coverage for a small fee, providing peace of mind for self-custody holders.
Crypto exchanges also employ unique approaches to safeguard user interests. Binance, for instance, manages its emergency insurance fund, the Secure Asset Fund for Users (SAFU). This internal fund serves as a safety net, covering verified losses resulting from vulnerabilities or deficiencies in Binance’s security systems. Such measures offer a layer of protection and build trust among users, enhancing the overall security of the exchange.
Innovation within the crypto insurance sector presents an opportunity for traditional insurance providers to improve their practices. Simon Dixon, CEO of BnkToTheFuture, believes that smart contracts can revolutionize the insurance industry, making it more accessible to a broader audience. By incorporating smart contract technology, insurance providers can streamline processes, enhance transparency, and ensure timely claim settlements. This evolution can potentially address the growing pains both traditional and crypto insurance sectors face.
The field of crypto insurance presents a unique set of challenges due to the constantly evolving nature of the digital finance landscape. Providers must navigate complex risk assessments and storage vulnerabilities to offer comprehensive coverage. While individuals face obstacles in obtaining insurance, industry players are exploring innovative solutions. By embracing smart contracts and learning from the crypto sector’s practices, traditional insurers can improve their offerings and adapt to the changing needs of an increasingly digital world. As the crypto industry matures, the importance of robust insurance coverage cannot be overstated, and the evolution of insurance practices will continue to play a vital role in shaping its future.