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Coinbase exploring options to launch its own insurance company

  • The San Francisco-based exchange is in talks with Aon to establish its own insurance company
  • The captive insurance method appears to be the most likely option
  • Aon has a history of collaborations with crypto companies
  • $255m worth of Coinbase’s digital assets are already insured by Aon

Coinbase, one of the world’s largest cryptocurrency exchanges, is currently in talks to launch its own insurance company. The San Francisco-based firm is negotiating with insurance giant Aon to set up its own “captive” insurance company.

The captive insurance method involves an insurance company that is fully owned and controlled by those it insures. The main aim is to decrease costs and improve access to reinsurance markets, as well as asset protection from the claims of business and personal creditors. With this method, the new insurance company would make sure that only its parent company (Coinbase) is insured, not competitors.

“There is a lack of capacity and some are uncomfortable with what is available in the marketplace and are looking to alternative solutions. 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,” said Aon Managing Director and Financial Institutions Practice Leader Jacqueline Quintal.

Aon has already provided the support to establish the industry’s first crypto captive company for an unnamed client earlier this year. The goal of the company is to write policies covering hacks of hot (online) wallets and “specie” coverage for cryptocurrency that is kept offline in cold storage.

Aon has also entered into a partnership with Metaco, a digital asset custody technology firm, to provide cryptocurrency coverage for their clients. The panel of insurers, gathered by Aon, will offer a crime insurance product to institutions using Metaco’s wallets. Metaco is partially owned by the Swiss telecom provider Swisscom.

Earlier this year, Coinbase confirmed that it has a hot wallet policy with a $255m limit on insurance placed by Aon, which is described by Coinbase as “our brokerage representative.” The exchange also noted that it has developed a strong relationship with Aon during the last six years of cooperation, as the insurance giant “helped us [Coinbase] navigate this marketplace and bring together a group of insurers who were willing to lean forward and learn about risks in cryptocurrency way before it was a common concept.”

“Companies should focus on insurance for value in flight. This means that exchanges and wallets should have sufficient crime coverage to fully cover their hot wallets (including enough buffer to handle asset price spikes),” said Philip Martin, a Chief Information Security Officer (CISO) at Coinbase.

Coinbase reportedly holds around 2% of its total assets in hot wallets at the moment, meaning assets that are essentially online and open to potential hacks. The exchange is considered one of the biggest ones that has not yet suffered a major hacking attack.