Why digital assets are different
When we think of ‘crypto’, digital assets refer to your funds i.e. ETH, BTC, or another crypto coin. These assets exist on a digital distributed ledger — you don’t carry them around, instead, you hold private data that allows you to access and perform transactions using these assets. So technically a wallet isn’t a store of your assets, but rather provides a convenient way to transact using your funds. This is an important distinction because it makes digital asset insurance a different proposition from physical asset insurance as the risk scenarios are more varied — it spans the physical and digital worlds.
Insurance landscape for digital assets
The demand from the crypto-ecosystem for insurance is growing. Crypto investors and businesses involved in the web3 ecosystem are becoming more attuned to risks — the latest crypto downswing has acted as a catalyst in this regard.
Although digital asset insurance is often the first cover type that comes to mind, there are many other insurance products needed by crypto companies — think business interruption for crypto-miners, or D&O for company directors, and the list goes on.
Insurers with the right knowledge and risk appetite are in a strong position to capitalise on this demand, but availability remains a significant barrier to expansion. From the demand side too, as the number of crypto-insurance products grows, the market becomes increasingly hard to navigate, both as an investor or a potential insured party. Add to that a lagging, uneven regulatory landscape, and both supply and demand sides of this niche insurance market are left in a tough spot.
Safety and trust
At OnRe, the former is achieved through a combination of technical and business controls. At a business level, Segregated Accounts are used to compartmentalise an account’s assets within the OnRe Segregated Accounts Company (SAC). If an account becomes insolvent, there is no recourse to funds held outside that account.
Account funds are periodically transferred from our offer smart contract, to a multisig, where funds are converted to yield bearing stablecoins and custodied as underwriting capital for reinsurance investments that supercharge the yield of these assets.
Likewise, at a Segregated Account level, further controls secure the transfer of funds out of an account, for instance, in the event of a claim payout (to an insured), a participation distribution (to a capital provider), or fee disbursement (to a service provider). Funds are released based on a multi-party review and signing process requiring a certain threshold of key holders to approve each transaction.
To improve trust between stakeholders, and to meet our regulatory requirements, OnRe controls access to the marketplace through stringent onboarding that includes AML and sanction checks, identity verification, and other business and individual screening as required.
Once users are onboarded, they will be able to interact with the platform through web3 login (currently MetaMask), which is used both as an identity and as the method for interacting with a user’s on-platform balance.
How to protect your assets
What does this all mean for securing your digital assets? Even with the challenges described above, there are innovative insurers that are leading the way with digital asset cover, and OnRe is working with several of them.
Breach’s product Crypto Shield offers crypto holders a convenient solution to insure against exchange hacks. Relm provides crypto businesses with a range of tailored cover options, from D&O to digital assets. Evertas, who is also a Lloyds cover holder, offers digital wallet underwriting and many related services.
Insurance products can offer subtly different conditions and exclusions, and these variations between policies mean that seeking advice, or perhaps even a bespoke policy, often makes sense. Many insurance brokers have developed digital assets teams that can offer these services to you. For instance, Aon’s Digital Asset Practice has been helping its business customers gain cover in the crypto space for several years.
The bottom line
No technology is infallible, and whether you’re just starting your digital asset journey, or have been on the scene for many years, it remains true that insurance is a helpful tool in your approach to managing digital asset risk.
If you’d like more information on how OnRe can help you, head over to onre.finance.
