Crypto exchanges and investments firms facing insurance challenges, says Evertas
Crypto asset insurance company Evertas says crypto investment firms and exchanges could fail to meet the insurance requirements set by regulatory bodies because of a lack of capacity from insurers for covering these assets and a poor understanding of the risks associated with them.
Evertas has analysed Hong Kong’s Securities and Futures Commission (SFC) announcement at the end of last year on its new licensing scheme on virtual asset exchanges and its insurance requirements and believes insurers and brokers do not have the knowledge, experience or systems to effectively meet these.
SFC insurance requirements for virtual asset exchanges and investment firms focusing on cryptoassets include:
• In respect of the custody of client virtual assets, a Platform Operator should ensure that an insurance policy covering risks associated with the client virtual assets held in hot storage (full coverage) and risks associated with the client virtual assets held in cold storage(a substantial coverage, for instance 95 per cent) is in effect at all times.
• A Platform Operator should base its choice of insurance company on verifiable and quantifiable criteria. These include a valuation schedule of assets insured, maximum coverage per incident and overall maximum coverage, as well as any excluding factors.
• Any claim by the Platform Operator’s clients arising out of hacking incidents on the platform or default on the part of the Platform Operator or its Associated Entity should be fully settled by the Platform Operator, its Associated Entity or insurance company.
J Gdanski, CEO and Founder of Evertas, says: “The crypto asset market is worth around USD250 billion but the global insurance industry only provides about USD1 billion to USD2 billion of capacity to cover this asset class. When it comes to covering crypto assets, the insurance industry lacks underwriting scale, automation and efficiency. Also, its poor understanding around the nuanced and varied threats in the crypto asset and blockchain industries means it’s hard for them to identify new risks facing clients here and keep them informed of developments in this area to assist in preventing losses.
“The overall crypto asset market is partly unsustainable because with so little capacity from insurers, one significant covered incident could kill the market for long periods of time.”
To provide adequate insurance to exchanges and financial services companies trading crypto assets, Evertas says insurers need to invest in building their knowledge of crypto assets and their teams of underwriters in this space. However, Evertas warns this cannot be done overnight – it took them years to develop its underwriting and claims forensics capabilities.
Raymond Zenkich, President and COO, Evertas says: “Unless the insurance sector addresses these challenges, the level of support and cover it can provide exchanges and financial services companies trading crypt oassets will remain insufficient.”