Coinbase may be looking for an alternative to self-insuring.
Cryptocurrency exchange Coinbase has reportedly been discussing the possibility of launching its own regulated insurance company with the assistance of insurance broker Aon, Coindesk writes.
Traditionally, cryptocurrency exchanges like Kraken or Huobi self-insure due to very high commercial insurance pricing and underwriter’s unwillingness to cover cryptocurrency-related risks. However, self-insurance is in no way regulated, with no formal structure. Captives offer a “regulated, audited vehicle” to store funds, which are held separately from other funding. This type of insurance is often favoured by corporations since establishing captives may help reduce insurance costs.
What is more, captives offer one more advantage over self-insurance.
“If a firm is self-insuring, they’ve accepted responsibility for funding 100% of any loss,” said Jacqueline Quintal, Aon’s managing director and financial institutions practice leader. “Captives, in comparison, provide a means through which firms can access insurance or reinsurance, while also pre-funding self-insured loss amounts in a more formal way than simply setting aside capital.”
According to Coindesk, Aon has begun establishing captive companies in the Cayman Islands in partnership with unnamed cryptocurrency firms. The company has also set up its first crypto captive this year, offering Crime coverage in the case of hot wallet hacks and Specie coverage for cold storage-held cryptocurrencies.
Aon and Coinbase have already worked together this year when the insurer helped Coinbase obtain $255 million hot wallet coverage.