Crypto insurance: Breach partners with CoinList
UK-based CoinList, the full-service token sale and crypto trading platform, and Boston-based Breach Insurance are partnering to offer an industry-first crypto-dominated insurance policy, reports reveal.
Breach provides cyber insurance and risk management solutions for digital asset exchanges. The new policy, which is also issued in partnership with UK-based insurtech Nayms, covers electronic theft and phishing risk, with collateral denominated in Bitcoin provided by MakerDAO.
The cover essentially insures the loss of crypto assets, due to cryptocurrency exchange hacks, protects against cyber theft, provides multi-exchange and multi-coin support and can configure a single policy to manage all customer crypto risks. The cover also simplifies the process, so users no longer have to move crypto between wallets, manage multiple private keys or purchase hardware wallets.
Speaking about the new products, Scott Keto, chief operating officer of CoinList, explained, “CoinList has been the premier platform to connect early adopters with high-quality token projects. As those projects have matured, CoinList has naturally evolved to support those projects and their backers through our spot exchange and mobile wallets, which demand sophisticated risk management solutions.”
He continued, “Yet, despite the high demand for crypto insurance products, the market is still nascent and rudimentary. We are excited to partner with Nayms, Breach, and MakerDAO to build out and scale insurance and reinsurance solutions suitable for our sophisticated partners.”
According to Breach, the new policy was inspired by a shortage of reinsurance capacity available to crypto risks and the gap in the market for the insurance industry to identify complementary sources of reinsurance capacity and collateral.
Nayms, which has partnered with Breach to offer the product, enables the service to cover complex crypto risks at scale, such as policies that cover traditional catastrophic risks in the property and casualty (P&C) and surplus lines sectors.
“At Nayms, we are building the bridge between capital and risk for digital assets,” said Dan Roberts, co-founder and CEO of Nayms. “That bridge is a regulated environment, using key technologies adopted by sophisticated entities. Breach [is] one of those entities, with a strong solution that will, in partnership with Nayms, enable scalable cover for this emerging risk class.”
Traditionally, cryptocurrencies are considered risky because of market volatility. They are speculative, and traders must understand the risks before they trade in them. Unexpected changes in market sentiment can lead to acute and sudden changes in value.
Pointing out that a brand-new type of insurance is required to manage crypto products, Meltem Demirors, chief strategy officer at CoinShares, said, “It’s no surprise that crypto markets have historically been perceived as risky. It is very challenging to hedge against the variety of risks Bitcoin presents – nascent, novel market structures and new types of operational risk presented by a purely digital asset that settles with finality require new approaches to insurance.”
Demirors concluded, “The launch of this new product from Breach will bridge traditional financial insurance products with the latest in cybersecurity to bring trust and protection to digital finance.”
Eyhab Aejaz, CEO of Breach, said the markets had been underserved for too long and the need for such cover was growing. “As regulated insurance options for crypto risks continue to lack innovation and are generally un/underserved, Breach is grateful for the opportunity to serve the needs of the crypto market, including retail and institutional investors, custodians, exchanges and technology companies, amongst others.”
Aejaz added, “The insurance industry lacks deep crypto expertise, while the crypto industry lacks deep insurance expertise, so we fit a significantly important niche and are quite excited about it.”
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.