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Published Oct 20, 2022
By Qredo Team

Digital Asset Insurance: The Challenges of Covering a New Asset Class

The rising value of the digital asset market has been matched by skyrocketing losses, with the impact of human error and cybercrime growing larger each year.

If digital assets are to fulfill their potential and become more than just a drop in the bucket compared to the $100 trillion stock market, then market participants need a way to effectively manage this risk.

Insurance offers a solution. But, reconciling this traditionally cautious industry with the bold innovation of digital assets is not an easy task.

Qredo has forged relationships with several leading brokers to overcome the challenges of digital asset insurance and offer a flexible solution for both individuals and institutions. 

Key obstacles to insuring digital assets

Despite digital assets being on the insurance industry radar since 2015 when Lloyd’s first published a report listing bitcoin risk factors, some big-name insurers still haven't entered the market, and those that have, have done so tentatively. 

This slow uptake can be traced back to three major stumbling blocks:

  • Lack of historical data  

    Insurance premiums are based on historical data. But as the digital asset market is barely a decade old, there is very little data or loss history available. This reduces insurance companies' ability to price risk.

  • Extreme volatility 

    In the wildly volatile digital asset market, rapid price movements can shift valuations by double-digit percentages overnight, and have a knock-on effect on insurance premiums.

  • Regulatory ambiguity

    As demonstrated by a number of high-profile legal cases, regulatory risk remains a constant feature of the crypto market. Insurers can therefore find it difficult to determine the risk of regulatory breach and establish the likely cost of legal action.

"The insurance market takes risks away from businesses, which encourages innovation. However, it has not offered the same level of support for digital asset companies when compared to established industries. Qredo's Specie policy demonstrates insurers are becoming more comfortable with digital assets and I am confident the insurance industry will play a larger role in the growth of the digital asset sector in the years to come."

— Rupert Poland, Vice President at Marsh


Overcoming the obstacles

Despite the challenges, the digital asset insurance industry is slowly developing.

Each passing week brings more information to evaluate risk and inform policies, including a trove of onchain data, made ever more accessible by the growing number of blockchain surveillance firms.  

At the same time, the regulatory barrier to adoption is slowly dropping. Regulators around the world are making progress  on the big questions of classification and investor protection, paving the way for a more orderly integration with traditional markets.

Most significantly perhaps, the infrastructure itself is maturing: insecure wallets are being replaced with bank-grade custody solutions that minimize the risk of hacking, and decentralized finance (DeFi) protocols, although still firmly in their infancy, are beginning to show resilience.

Meanwhile in the insurance industry itself,  more crypto natives are joining that have sufficiently deep knowledge of the technology to write policies — helping the supply of insurance gradually grow to meet high levels of demand.

Three layers of coverage

Qredo has taken a proactive approach to insurance and developed layered protection which enables users to mix and match policies, and roll out multiple layers of coverage to protect their digital asset activity.

  1. Crime coverage  

    Assets held on Qredo Network are insured against malicious intent and theft from Lloyds of London, underwritten by Sompo. This is supplied as standard for all accounts, and provides a fundamental backstop against loss, damage, destruction or theft.

  2. Specie coverage

    Specie insurance is a specialized form of coverage for protecting high-value portable items at specific locations and in transit. For example, specie insurance is often used to protect gold across the entire lifecycle from mined ore to bullion,  and has also been used to insure private keys when they are held in a specific location, such as on paper in a bunker under the Swiss Alps.

    Qredo's optional specie policy, underwritten by a leading Lloyd’s of London underwriter, offers up to $600 million of insurance for assets secured on Qredo Network. It covers the cryptographic secrets that are used to authorize transactions, and protects assets on Qredo Network in both storage and transit. This means that your assets are not only covered when sitting in your Qredo Wallet, but also when being traded or transferred on Qredo Network. 

  3. Decentralized coverage

    In Q4 2022, Qredo is set to offer an additional layer of custom insurance through integrations with leading decentralized players such as Nexus Mutual.

"Through these various different layers of insurance, Qredo can offer even more complete protection than exists in traditional finance. Instead of being restricted to only one policy, users can play smart and take advantage of optionality to get broader coverage that meets their specific needs"

— Josh Goodbody, Qredo COO

To learn more about Qredo insurance, arrange a meeting with a specialist. 

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