I am glad you asked.
Bitcoin Theft Insurance policy along with a global “A” rated insurance carrier
Bitcoins
Once again the insurance industry is faced with a new risk in the technology space. Once again the global economy is being transformed with a new way of conducting transactions. And, once again, the insurance industry is faced with a dilemma: Do we ignore this new risk or face it head on? There are over 8 million bitcoin “wallets” in existence today, and this is expected increase to 12 million by the end of year. The total value of bitcoins worldwide, expressed in terms of US dollars is around 4 billion dollars. There are over 100,000 bitcoin transactions happening every day. Over 80,000 companies, from Microsoft to Dell to Expedia.com accept bitcoins as a form of payment for their goods and services. But how do you insure bitcoins? More specifically, how do you insure the theft of the electronic private keys that are used to access bitcoins? A smart insurer realizes that such a task is an exercise in both the familiar and the foreign. A private key is, after all, an electronic file. In many ways, the policies and procedures used in the network security space to protect any computer system holding any file are the same as those used to protect an electronic private key file. Equally true is the fact that a good portion of private keys are stored in “cold storage”, meaning that they are not held it a computer which has access to the Internet. Some are actually stored in a bank vault. Storing valuables in a bank vault is also a well-understood risk and insurable. Finally, many companies who would be interested in purchasing Bitcoin Theft Insurance are themselves technology providers. Insurance for technology companies has existed for some time.
However that’s where the analogy ends and things begin to become difficult. First, the “cyber” insurance policies provided today actually do not insure the intrinsic value of the electronic file stolen. The policies do not cover the “value” of a social security number, for example. Furthermore, best practices in the securing of private keys in “hot storage” (computers connected to the Internet), rely upon the multisig, or multiple signature, technology, something with which insurance underwriters are generally unfamiliar.
At best, underwriting the theft of bitcoins requires coordination of multiple underwriting departments within an insurance company. More likely, it means creating new underwriting techniques and protocols. Will the insurance industry be able to respond to the call? The insurance industry historically has not been known for innovation. So, how will we respond when it is faced with a new and potentially important risk, for which there is no historical actuarial data? Do we run away or do we embrace a new need and a new opportunity as we did 15 years ago?
Only time will tell. However, in February 2015 one company successfully designed the first true Bitcoin Theft Insurance policy along with a global “A” rated insurance carrier.
If you are interested in this type of coverage let me know.
Thanks
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