On April 2, Philip Martin, Chief Information Security Officer of Coinbase, revealed details of its hot wallet encryption insurance in an official blog. Philip Martin said Coinbase holds a hot wallet policy with a cap of $255 million set by Aon, a registered broker with Lloyds of London, to cover the risk of theft from hacking the exchange.
As a leading cryptocurrency exchange, Coinbase has added insurance to its hot wallets since November 19, 2013, and the level of coverage is comparable to that of U.S. commercial banks’ customer savings insurance. The reason is simple, the risk of being stolen from cryptocurrency exchanges is extremely high, and insurance is a key factor in attracting institutional investors.
(Recommended reading:Study: Crypto Exchanges Stolen Funds Total Over $1.3 Billion）
However, the insurance market as the supply side seems to be absent for a long time. Because of frequent hacking incidents and the lack of sufficient security measures in cryptocurrency exchanges, insurance companies deliberately avoid this field. Statistics show that for the loss or theft of digital currency, insurance companies will charge policyholders 5 times or more premiums than normal levels. As a result, some cryptocurrency companies have had to forego this high-cost guarantee.
It wasnt until the cryptocurrency market became bigger and bigger that insurance giants began to set foot in this field. So far, more than a dozen well-known insurance companies have announced their cryptocurrency insurance plans, including AIG, XL Catlin, Chubb, Mitsui Sumitomo Insurance, etc.
(Recommended reading:How will the insurance tycoons who are about to arrive on the battlefield get a piece of the lucrative digital world?）
Lloyds of London, which provides services for Coinbase this time, was established in 1686 and is essentially an insurance supermarket, or an insurance syndicate. Many insurance giants apply to become registrars at Lloyds of London, which receives business and subcontracts insurance to multiple companies to spread risk.
Between 2011 and 2016, Lloyds of London paid out approximately $87 billion in claims. In the cryptocurrency market, Lloyds of London has acquired the likes of the Winklevoss brothers Gemini exchange and the Kingdom Trust, which has more than $12 billion in cryptocurrencies under custody.
Of course, Aon Insurance (Aon), one of the worlds largest insurance groups, specifically insured Coinbase.
Coinbase has adopted two types of insurance policies: Specie and Crime.
Specie insurance specifically covers physical damage or loss of private wallet keys, including loss of exchange employees.
The second type, Crime, focuses on losses that may result from insider theft, hacking, and fraudulent transfers of fiat or cryptocurrencies.
