Crypto Insurance a Promising Sector Despite Caution of Major Players

The challenge of insuring cryptocurrenciesWith millions at stake, not to mention a growing cryptocurrency market capitalization, the insurance industry can provide a safety net for crypto investors.

Coinbase claims in an insurance document that it maintains "Commercial criminal insurance in an aggregate amount that is greater than the value of digital currency" it holds in hot storage.

In October 2018, Gemini also obtained insurance services from Aon and the Federal Deposit Insurance Corporation.

Apart from Lloyd's, a report by Bloomberg noted that other major players in the insurance industry such as Aon, Allianz and Marsh & McLennan are also paying attention to cryptocurrency insurance.

"A lack of regulatory clarity and limited insurance loss experience" are among the main issues causing the hesitant approach of the insurance market towards crypto.

On the other hand, the Bloomberg report showed that although the crypto industry is rife with heists and fraud, there are many insurers "Betting they can avoid the pitfalls" to benefit from the substantial premiums of crypto insurance.

When asked to comment on possible methods that could be used to improve crypto insurance, Fletcher suggested that crypto exchanges should partner with a brokerage representative who is "Knowledgeable about digital assets and understands how to navigate a volatile insurance market." Fletcher also believes that insurers will need to understand the unique risks of each crypto exchange company while being mindful and respectful of the underwriting process.

With a growing number of crypto startups considering insurance as a must-have in these times of cyber insecurity, there are greater opportunities for insurers to offer products tailored to each client's specific needs.

All things considered, the insurance business is a people business and the most effective way to improve engagement between crypto exchanges and insurers is to have in-person meetings.

Traditional insurers are looking for full transparency to tackle some of the custody challenges of the crypto insurance market.