NEW YORK • In the staid and buttoned-up world of insurance underwriting, few want to talk about it. You won't find many advertisements promoting it, or details on company websites offering it.
But according to industry insiders, there's a hot new business that more and more firms are looking to get into: crypto insurance.
It's understandable why big names like AIG, Chubb and XL Group haven't provided too many specifics. On its face, providing coverage to crypto start-ups might seem borderline absurd. It's an industry with a well-deserved reputation for being like the Wild West - an unregulated digital frontier where frauds and heists are rife (recall the hacks of Mt Gox, and more recently, Bitfinex and Coincheck) and get-rich-quick schemes abound.
The collapse in the price of bitcoin this year has not helped matters either. But as cryptocurrencies, and their underlying blockchain technology, slowly gain broader acceptance, some insurers are betting they can avoid the pitfalls.
The premiums from insuring such risk can be substantial. By some accounts, underwriters can charge a crypto-related company upwards of five times or more than your average business for coverage against loss or theft.
"Insurance for cryptocurrency storage will be a big opportunity," says Mr Christian Weishuber, a spokesman for Allianz, which began offering individual coverage for digital-coin theft in the past year and was one of the few insurers that agreed to talk about the issue.
"Digital assets are becoming more relevant, important and prevalent on the real economy and we are exploring product and coverage options in this area."
While the cost is still beyond reach for many fledgling companies, Marsh & McLennan and Aon, the two leading insurance brokers that help companies shop for crypto policies, say business has been brisk this year. For the first time, Marsh formed a team of 10 dedicated to servicing blockchain start-ups.
Aon, which claims to have over 50 per cent of the market for crypto insurance, recently streamlined its standard policy form to speed up the underwriting process. It has also seen some insurers tweak general company policies to include crypto-specific protections.
Marsh and Aon declined to identify their partners, but people familiar with the matter say over a dozen underwriters, including Chubb and XL, provide coverage to crypto-related businesses.
American International Group, which has also been adding crypto coverage into standard policy forms, said it has met cryptocurrency custodians and trading platforms about coverage. The firm declined to say how much in crypto-related premiums it has taken in. So far, Marsh and Aon say they are not aware of any insurer that has had to pay out crypto policy claims - in spite of the spate of headlines about hacks and thefts in recent months.
With 2018 on track to be the busiest year for hacks on record, the potential for a reputational black eye is perhaps one reason why many insurers have declined to speak publicly about crypto. Lloyd's of London, the world's oldest insurance market, published a bulletin this month with guidance on crypto coverage and asked its agents to "proceed with a level of caution that recognises the risks".
What's more, there is also the worry some start-ups will overstate the amount of crypto insurance they have. BitGo, a cryptocurrency services provider, met roughly 75 insurers during a May trip that included stopovers in New York, London and Bermuda. Back in 2015, the company became one of the first to get crypto insurance, only to drop coverage a year later because of the expense, says chief executive officer Mike Belshe.
Based on conversations with several brokers and industry experts, crypto companies typically seek out crime and cyber coverage, as well as policies known as directors-and-officers insurance, which covers losses that arise from legal actions against executives or board members. They can end up paying premiums as high as 5 per cent of their coverage limits each year.
Those looking for larger amounts of coverage often need as many as a dozen underwriters, with each offering US$5 million (S$6.8 million) to US$15 million of insurance, according to a person familiar with the matter. The practice ensures no single insurer is ever on the hook for too much when disaster strikes.
Many young start-ups cannot afford the costly premiums; policies can still take months to get approved; and exclusions can add up fast. Another sticking point is that coverage amounts often fall short of the sums that could potentially be lost.
BLOOMBERG
