Crypto Insurance and crypto executives have reported that insurance companies spend a great deal of time deciding whether to cover a crypto company, while offering no assurances to individual customers, as reported by Cointelegraph.
In 2020, $3.9 billion worth of crypto assets were stolen from companies, decentralized finance platforms and users, a 22% increase from the previous year. Some experts are predicting an even worse year in 2023.
Raymond Zenkich, President of a cryptocurrency insurance firm Evertas, told Cointelegraph that the process of assessing the risks of a crypto platform can be complex. It begins with an underwriting – the evaluation and analysis of the risks of insuring assets – based on a detailed application form that includes over two thousand variables in twenty different risk areas.
“A significant risk factor is key management: whether keys are stored in hot, warm or cold wallets,” Zenkich noted, adding that there are various levels of hot and warm wallets, each with their own risk profile.
A hot wallet exploit was experienced by the crypto exchange Bitrue in April 2021, resulting in the theft of nearly $23 million worth of crypto assets. The affected hot wallet held less than 5% of the exchange’s overall funds, and the remaining wallets were not compromised, according to the firm.
After determining the level of storage risk, Zenkich said that thousands of “business, technology and operational variables” need to be looked at to establish the amount of premium to charge. “Once we have the answers to all the applicable questions, we determine what kind of premium we would need to charge to justify taking on the risk,” he explained.
Crypto insurance providers are usually unwilling to insure individuals who don’t hold assets on an exchange, such as through self-custody or other means. Adrian Przelozny, CEO of the Australian crypto exchange Independent Reserve, has said that it would be difficult for a customer to prove to the insurance provider that they actually lost crypto, rather than taking it themselves.
The provider does not insure assets outside of the exchange platform, however customers can have 100% insurance coverage for a small fee when signing up. The insurance contract includes many events, from hacks to “theft caused by our team.”
Meanwhile, a spokesperson for cryptocurrency exchange Binance has revealed that they have an internal emergency insurance fund, Secure Asset Fund for Users (SAFU), which was established in July 2018 to protect users’ interests. This fund is managed by Binance and covers verified losses due to vulnerabilities or other deficiencies in Binance’s security systems and/or security protocols.
Simon Dixon, CEO of leading online investment platform BnkToTheFuture, believes that traditional insurers can learn from their crypto-competition and improve their business practices. “There is an opportunity to improve on traditional insurance with Smart Contracts and make it more accessible to all, which I look forward to seeing grow as an industry, with our sector’s usual growing pains,” he said.