This Blue-Chip Crypto Insurance Consortium Lacks One Thing – a Sizable Loss

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Please consider using a different web browser for better experience. Please enable JavaScript in your browser for a better site experience. This Blue-Chip Crypto Insurance Consortium Lacks One Thing – a Sizable Loss Jan 13, 2020 at 17:57 UTC Updated Jan 13, 2020 at 18:20 UTC Lloyd's of London building: Shutterstock This Blue-Chip Crypto Insurance Consortium Lacks One Thing – a Sizable Loss The Takeaway: In a rare interview, London-based insurance firm Arch says a sizable but containable loss would demonstrate how well its $150M crypto storage policy would react. Only a handful of cold storage crypto policies have been written at this time; high net worth individuals are the main driver for the business. Lloyd’s of London has set up a crypto subgroup within its Product Innovation Facility, which includes mega-broker Marsh. Marsh says it has a hot wallet crime cover product in the pipeline. An insurance company saying it hopes to pay a sizable claim sounds like a turkey looking forward to Christmas. But that’s exactly what James Croome, fine art and specie underwriter at Arch Insurance International, says he wants his firm to do. Just to show that it can. Arch is one of the few underwriters willing to insure cryptocurrency exchanges and custodians against the theft or loss of customer funds. London-based Arch Insurance International, which works with a number of big-name brokers offering crypto cover, is yet to pay out for any losses in this relatively new market. If someone does manage to pull off a heist of cryptographic keys kept offline in cold storage, Arch will get a chance to demonstrate it’s good for the money, said Croome, who works out of London. “I would like there to be a containable, but sizable loss,” he said. “Because that would give evidence to our potential clients as to the service we can provide, the speed at which we will pay the claims, and remind people who have bought coverage that it does work appropriately.” Insurers have years of experience in covering specialized assets in the traditional world, whether that's fine art or the regulatory requirements to protect financial services firms. But they feel less secure with crypto, because there is a shortage of data for firms to model policy rates from. In response to this, Croome helped create a consortium, including mega-broker Marsh and global law firm Norton Rose Fulbright, to offer cold storage cover for crypto assets. Released back in September , Blue Vault, which is solely owned by Arch, provides limits of up to $150 million and covers the loss of digital assets due to internal and external theft (via direct access to the storage media as opposed to remote hacking attacks) and including employee collusion. Blue Vault also covers physical damage or destruction of private keys from fires, floods, earthquakes and other catastrophic events. Ankur Kacker, vice president and specie expert on Marsh's Digital Asset Risk Transfer (DART) team, said: “We have placed four policies for Blue Vault as of now, all in the last seven months.” Marsh, the world’s largest insurance broker, recently announced a deal with Ledger Vault , the institution-focused arm of Ledger, the well-known hardware wallet provider for $150 million cold storage cover; Marsh is working in a similar way with crypto custodian KNOX. Pet peeves Arch chose to work with law firm Norton Rose Fulbright on the crypto policy because it wanted precise policy wording. Ambiguous language is a pet peeve of Croome’s. “My biggest annoyance with the specie market is the existence of ambiguous wordings which is why I chose to work with a legal firm with a track record in this space,” he said. Norton Rose Fulbright has given presentations in New York, Bermuda and to the London Market to help “educate insurance markets and develop set the market and standards for cold storage of these assets,” said Nicholas Berry, a partner at the law firm. The firm also helped Lloyd’s of London with its market guidance on underwriting digital assets. Norton Rose Fulbright enlisted the help of Peter McBurney, Professor of Computer Science, King’s College London and a consultant with the law firm, to spell out technical aspects of key management and crypto storage and create appropriate policy wording. This is an instance where the London Market has led other international markets, said Berry. “Going back to 2018, there has been a mismatch between supply in terms of underwriting capacity and demand for those wanting cold storage or even hot crime-type cover. Some of the big brokers have been pushing the supply side to provide more cover in terms of higher limits, wider cover,” he said. Crypto insurance is widely seen as a prerequisite for greater institutional involvement in the market. But Croome is wary of companies offering insurance policies as a marketing ploy. “We tend not to look at insureds that are looking for a chicken-egg scenario. They feel they don’t have a current revenue stream but are hoping the...