Coinbase Reveals Extent of Crypto-Insurance Coverage

The major cryptocurrency exchange Coinbase has revealed the extent of its insurance coverage in an official blog posted by Philip Martin, the company’s Chief Information Security Officer. This is a rare step in transparent disclosure in an industry that is notoriously opaque about its operations.

Insurance for Hot Wallet Crypto Holdings

According to the post, Coinbase has a $255 million insurance coverage for its hot wallet holdings provided by a broker registered with Lloyd’s of London. This policy has been in place since November of 2013. It was done, according to Martin, to protect especially against theft due to hacking, as this is the highest-risk loss scenario for cryptocurrency exchange customers.

Martin stated that the policy had been placed by Aon, which is a Lloyd’s registered broker, and has been sourced from a global group of insurance companies based out of the US and UK. Some of these companies include some of Lloyd’s of London’s syndicates.

Martin further clarified that Lloyd’s was not in itself an insurer. Rather, it functioned more as a partially-mutualized marketplace for insurance. In this marketplace, underwriters that are grouped together in syndicates connect to pool as well as spread insurance risk.

Two Classes of Insurance

The two classes of insurance that Coinbase has taken policies for are the Specie and Crime marketplaces. Specie insurance is specifically for physical damage or the loss of private wallet keys, including losses incurred by employees of the exchange.

The second type of insurance, Crime, focuses on losses that could be incurred by insider theft, hacking, fraudulent transfers of fiat or cryptocurrencies, and so on.

Martin explained that the difference between the two types of insurance. He said that Crime covers value in transit, while Specie covers value at rest.

The head of information security further clarified that Coinbase determined its coverage by focusing on enough Crime coverage so that all its hot wallet holdings were fully covered. The company also accounted for a buffer for asset volatility. He also said that the company did not promise any preferential payouts of insurance to customers, which in insurance parlance is known as First Loss Payee status to special customers.

Insurance Coverage from Other Insurers

Coinbase is not the only company in the crypto industry to have gained insurance cover. A crypto-custody platform created by Kingdom Trust, a US-based custodial firm, had been insured by an undisclosed insurer who was also a part of the Lloyd’s of London marketplace.

Major insurance companies such as Allianz, AIG, XL Group and Chubb are also reported to be tailoring their insurance policies to target crypto businesses.