Cryptocurrency exchanges are currently having a difficult time taking out an insurance policy due to security problems and countless cyberheists.
Cryptocurrency Firms and Insurance
According to Business Korea, cryptocurrency exchanges are currently in negotiations with insurance companies. The Korean Blockchain Association is in conversation with Hyundai Marine & Fire Insurance Co. and Hanwha General Insurance Co. to understand how cryptocurrency exchanges can take out an insurance policy.
The Korean Blockchain Association has been holding off negotiations on behalf of their member cryptocurrency exchanges since April 2018. The Association planned to select a specific insurer that its members can purchase insurance from. Insurance companies have been extremely reluctant and hesitant to insure cryptocurrency exchanges due to security concerns and insufficient credibility.
The association initially considered it a favorable opportunity for both parties if one insurer could secure many cryptocurrency exchanges in one go. They previously hosted an event to brief insurance companies and allow members to select their preferred insurer. However, ever since the recent Bithumb hack, insurance companies have become more unwilling and uncooperative, especially since the damages were worth approximately $31.46 million.
“The Korea Blockchain Association emphasized a stronger internal control system and security at the earlier sessions.” said an official from the Korean Blockchain Association. “But we cannot trust it as even the largest cryptocurrency exchange in South Korea was exposed to cyber attacks. There are no statistics related to the risks of virtual currencies both at home and abroad and it is still not sure whether an insurer can accept exchanges as its policyholders as a group, which are smaller and riskier than Bithumb.”
Cyber Attacks Remain Huge Concern
Business Korea suggested that insurance companies could offset their risk by working with reinsurance companies, companies that provide insurance for insurers, when the insurance companies decide choose not to work with cryptocurrency exchanges. The concern is reinsurance companies may not decide to insure the insurance company if they cannot trust the level of security from cryptocurrency exchanges.
While insurance companies can raise premiums for cryptocurrency exchanges and enforce greater security measures, the question is, how effective are the insurances? The current limit of liabilities when it comes to insurance for cryptocurrency exchanges is approximately $2.7 million to $4.49 million.
Insurers Not Convinced
In February 2018, Reuters reported many insurers were not yet convinced the cryptocurrency industry would be large enough for premiums to cover potential losses. According to CoinMarketCap, the cryptocurrency industry’s total market capitalization was approximately $500 billion.
“We’re looking at it, but does it make sense to offer a market for that,” said Frank Scheckton, the President of Great American’s Fidelity Crime Division. Ty Sagalow, the chief executive of Innovation Insurance Group LLC, which has provided insurance options for cryptocurrency companies since 2013 agreed. He mentioned it was “an expensive product that many companies can’t afford.”
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