Leading U.S. crypto exchange Coinbase has a hot wallet insurance policy with a $255 million limit. The company revealed this in a blog post by its Chief Information Security Officer (CISO), Philip Martin. The company’s policy is led by Aon, a broker registered by Lloyds of London.
Insurance in the crypto industry is relatively nascent for most companies. However, for Coinbase, it’s an area where the exchange has had over five years of experience. Martin revealed that the San Francisco -based company has held the policy continually since November 19, 2013.
The policy is sourced from a global group of insurance companies. This means that a large number of insurers have come together to make the policy. Each insurer takes a position of loss, with those at the lower layers paying first. This is necessitated by cryptos being one of the riskiest emerging industries to insure. By sharing the risk, insurers “build a diversified portfolio of risk and avoid any one loss wiping out an entire insurer.”
Insurance is a crucial component of any financial services company. For the mainstream banking industry, this insurance is offered by FDIC. Coinbase also has FDIC insurance for its fiat holdings, Martin revealed. However, cryptos are a whole different kettle of fish. Cryptos in hot wallets are especially risky as has been seen with the multimillion dollar hacks that have rocked the crypto industry.
Crypto insurance is in two classes, Martin explained further. The first is Specie and this covers value at rest. Specie policies insure against physical damage or loss of private keys, including employee misuse and theft. They don’t cover against blockchain-specific failures such as vulnerable smart contract multisig implementations.
The second class is Crime, and this covers hot wallet losses. Losses related to insider theft, hacking or fraudulent transfer fall under this class. Crime policies don’t cover failures of the underlying currency such as 51 percent attacks. These policies are also significantly more expensive as the risk is higher.
The crypto insurance industry has grown by leaps and bounds over the last few years. Big names in the insurance industry such as Aon, Allianz, AIG and Chubb have all taken the plunge into this budding industry.
However, a report by Bloomberg last year found that crypto companies still have to jump through hoops just to get insured. BitGo, one of the first crypto firms to get insured had to meet with over 75 insurers to secure its policy. Crypto firms also have to pay a higher premium compared to clients in other ‘safer’ industries.
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