Crypto Insurance Providers Face Complex Assessments
Crypto insurance providers spend enormous amounts of time judging whether to provide coverage to a crypto company, and almost none of them offer assurances to individuals, insurance and crypto executives told Cointelegraph.
The Rising Threat of Crypto Hacks and Exploits
Last year saw $3.9 billion stolen from crypto companies, decentralized finance platforms, and users, a massive 22% rise from the prior year — and that’s only counting hacks and exploits. Some believe 2023 could be even worse.
The Detailed Underwriting Process
Raymond Zenkich, president of cryptocurrency insurance firm Evertas, explained that initially, an underwriting process is performed “based on a very detailed application form” that involves crunching 2,000 variables across 20 risk areas. A significant risk factor is key management, determining whether keys are stored in hot, warm, or cold wallets. Different wallet storage options have their own risk profiles.
Determining Premiums Based on Risk Assessment
After assessing the level of storage risk, the insurance firm examines thousands of business, technology, and operational variables to determine the premium to charge. Zenkich stated, “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.”
Challenges in Insuring Individuals
Crypto insurance providers are usually unwilling to insure individuals who don’t hold assets on an exchange through self-custody or other means. Adrian Przelozny, CEO of the Australian crypto exchange Independent Reserve, explained that it would be challenging for a customer to prove to the insurance provider that they actually lost the crypto and didn’t take it themselves. However, the exchange platform offers insurance coverage for assets held on their platform, providing customers with a direct relationship with the insurer.
The Case of Binance’s Secure Asset Fund for Users (SAFU)
Cryptocurrency exchange Binance manages its emergency insurance fund called the Secure Asset Fund for Users (SAFU) internally. The fund was established in July 2018 to protect users’ interests. A verified loss sustained by a user from a vulnerability or other deficiency in Binance’s security systems and/or security protocols would be covered by SAFU.
Improving Insurance Practices with Smart Contracts
Simon Dixon, CEO of online investment platform BnkToTheFuture, believes there are opportunities for traditional insurance providers to learn from their crypto counterparts and improve their practices. Smart Contracts could make insurance more accessible and enhance the industry.
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