Evertas, the world’s first cryptoasset insurance company, says the risks associated with cryptoassets are more complicated that the insurance sector perceives. These complexities have contributed to inconsistent underwriting based on factors outside of the risk such as the influence of their broker or their existing business relationships with carriers.
Evertas warns that the underwriting lacks scale, automation and efficiency. This means it’s hard to be repeated, making renewals potentially more difficult in the long run. It points out that the insurance industry’s overall nascent understanding around the nuanced and varied threats in the cryptoasset and blockchain industries means it’s hard for insurers to identify new risks facing insureds and keep clients informed of developments in this area to assist in preventing losses.
J. Gdanski, CEO and Founder of Evertas said: “The cryptoasset market is partly unsustainable because with so little capacity from insurers, one significant covered incident could kill the market for long periods of time.
“Insurers need to invest in building their knowledge of cryptoassets and their teams of underwriters in this space. However, this cannot be done overnight – it took us two years to develop our proposition.
“Unless the insurance sector can address these challenges and provide greater capacity, the cryptoasset and blockchain industries will suffer. Without this, the adoption of investments and projects in this space will be limited as risk committees will not approve them.
“Long-term, profitable underwriting around cryptoassets will need the methodology, frameworks, and risk modelling that we have developed over the last two years.”
An example of insurers and their understanding of cryptoasset risks
Evertas believes the insurance market has decided that cold storage represents “good” risks, and hot storage bad. However, it warns that insurers don’t necessarily understand the full complexity of the risks involved. For example, carriers can view disparate technologies (ranging from vaulted paper or metal wallets to more complicated custody systems using HSMs, MPC, or other technologies) as having the same risk. Furthermore, each type of system has a complicated interplay of factors that determine ultimate risk, the type of custody system used is insufficient to determine the quality of a risk and there are no consistent standards across the industry to rely on.
Raymond Zenkich, President and COO, Evertas said: “The Hot/Cold storage paradigm is increasingly irrelevant and “warm” storage technologies are expanding rapidly. For Evertas, we view any storage technologies as having unique architectures and specific attributes that need to be evaluated and accounted for. In addition, even if a base custody solution is sound, there are a myriad of unique threats spanning multiple fields (such as cyber, physical, accounting, regulatory, and others) based on the processes around accessing the cryptoassets. These important aspects of cryptoasset risks are what our underwriting addresses.”
Raymond Zenkich added: “Well regarded solutions still have associated risks and the key point is how they are being mitigated. Even if they are secure, the processes around them may not be. For example, many retail hardware wallets are controlled by visiting a website as opposed to using a dedicated application; this approach creates an enormous attack surface and makes users of them especially vulnerable to phishing and supply-chain attacks.”