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Cryptocurrency exchange Coinbase is reportedly seeking to establish its own regulated insurance company.
Sources familiar with the matter told CoinDesk that Coinbase is in discussions with insurance broker giant Aon to set up its own “captive” insurance company. The objective, they said, is to address the shortage of insurance currently faced by cryptocurrency exchanges.
This would not be the first instance of these companies working together. Previously in April, Aon arranged around $255 million in coverage for the cryptocurrencies held in Coinbase’s hot wallets.
Existing players in the crypto space often resort to the “self-insurance” approach to cover losses by setting aside a portion of crypto holdings. Crypto exchanges Kraken and Huobi have reportedly set aside $100 million and 20,000 bitcoin, respectively, for this purpose.
This, however, is not very effective due to the lack of a formal structure – firms are often tempted to utilize the funds for other purposes.
A captive addresses this challenge by segregating and holding the funds in a regulated audited vehicle, further enabling the firm to obtain additional cover from the reinsurance market.
“There is a lack of capacity and some are uncomfortable with what is available in the marketplace and are looking to alternative solutions,” said Jacqueline Quintal, a managing director and the financial institutions practice leader at Aon. “I think the path for most will be to buy some amount of traditional insurance first and then to explore alternative structures, potentially including a captive — and we are having more and more of these conversations.”
Earlier this year, Aon announced that it had set up the industry’s first crypto captive, which will write crime policies for hot wallets and “specie” coverage for cryptocurrencies kept in cold storage. The name of the client, however, was not revealed.
Last month, Aon also arranged a panel of London insurers who will offer crime insurance product to crypto custody company Metaco’s clients.
