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While Japan’s crypto exchange bitFlyer has formed a partnership with an insurance firm known as Mitsui Suitomo to offer the product, Coincheck has partnered with Nichido Fire Insurance and Tokyo Marine. Earlier in the year, Coincheck which is based in Tokyo was the victim of a hacking where virtual coins valued at more than half a billion U.S. dollars were stolen.
Wild fluctuations
According to the secretary general of Thailand’s Office of Insurance Commission, Suthipol Taweechaikarn cryptocurrency insurance products are not allowed due to the fact that their prices fluctuate wildly and this could expose insurance companies to high risks and this could expose the insurance firms to financial harm. Mr. Taweechaikarn, however, expressed hope that in future such products could be introduced once cryptocurrency regulations are put in place.
Besides Mitsui Suitomo Insurance and Tokyo Marine other insurers offering insurance products for cryptocurrencies include Chubb, XL Catlin, and Great American Insurance Group. In the case of Mitsui Suitomo Insurance, the cryptocurrency insurance product offers compensation for both internal as well as external threats. Mitsui Suitomo Insurance’s cryptocurrency cover, for instance, will compensate policyholders for employee theft, unauthorized access, and mistakes. Amounts covered range between ten million Japanese yen and one billion Japanese yen.
Preventive measures
The preventive measures that the Japanese insurer takes in a holder to mitigate losses include conducting employee background checks of the partnering exchange as well as performing a security diagnosis audit. Great American Insurance Group, on the other hand, provides insurance cover for businesses which accept virtual currencies such as bitcoin (BTC) as a means of payment. However, the unit of American Financial Group does not cover external threats such as hacking.
Some insurance firms will also offer cryptocurrency insurance to virtual currencies which are stored offline or in cold storage and avoid those that are in hot storage or online. This is because of the high risk of hacking that the coins in hot storage are exposed to. One of the world’s leading digital currency exchange, Coinbase, claims on its website that only less than 2% of its customer’s virtual coins are held in hot storage and these are already insured. It is understood that Lloyd’s of London is Coinbase’s insurer.
Currently, the global commercial insurance business is worth approximately $720 billion but the business generated by virtual currencies is only a tiny figure. However, insurers are hoping that as digital currencies get more popular this income stream will grow. Per CB Insights, a venture capital data provider, in 2017 over $5 billion was raised in digital coin sales with close to 800 deals being conducted. Estimates are not available indicating what fraction was insured or the value of premiums which were collected.