Individual cryptocurrency owners worried that their digital wallets are easily susceptible to electronic pick-pocketers -- and who wince when they hear Mt. Gox -- can now take solace knowing that they can insure their coins with a few keystrokes and clicks of the mouse.
On Tuesday, digital insurance infrastructure firm Boost Insurance, alongside insurtech Breach Insurance, announced that it has launched Crypto Shield, which covers the theft of cryptocurrencies while in the custody of a custodian such as Coinbase and Binance.US. In the case that the custodian is breached or suffers a social engineering attack resulting in lost assets, individuals insured under Crypto Shield can be reimbursed up to the value of their policy.
How it works
Although commercial insurance is available for institutions that hold cryptocurrencies, cryptocurrency insurance policies haven't been available to individual crypto owners, also known as retail wallet holders. Crypto Shield, however, is the first insurance product for individual wallet holders. "It's built specifically for us who may dabble in crypto but don't necessarily have institutional-grade accounts," said Boost Insurance CEO and founder Alex Maffeo in an interview with ZDNet.
Crypto Shield covers 20 cryptocurrencies, including Bitcoin, Ethereum, Ripple, Tether, Solana, Dogecoin and stablecoins such as USD Coin, and coverage is up to $1 million in cryptocurrency holdings. "We're really trying to target that retail-level investor, from those who are just getting started to the mass-affluent demographic," Maffeo said, adding that anything above $1 million begins an institutional-grade-level holding that presents a different risk profile.
Like any other insurance policy, you pay a fraction of the total value of your asset up to $1 million. So, for example, if you own one Bitcoin, which is priced at $43,620 as of February 16, you will pay Crypto Shield $89.80 a month for the value of that Bitcoin. A policy for a digital wallet holding 20 Ethereum coins, currently valued at $61,200, will cost $126.13 a month to insure, based on Ethereum's price of $3,060 a coin. "We anticipate seeing people insuring their entire wallet up to $1 million, so you'll pay some small percentage of your total wallet's value in order to make sure that it's protected forever," Maffeo said.
The need for new insurance for new technologies
Providing innovative insurance solutions to customers has notoriously been a difficult challenge for innovative companies in the fintech space. Maffeo, who first worked in venture capital back in 2009, focusing on banking and speciality-financed fintech firms, told ZDNet that between 2009 and 2015, he noticed that companies that provided the tools needed for other innovators in their various segments of fintech were dramatically improving the industry, producing barriers of entry for innovative concepts -- be it simple payment cards or alternative lending structures. "When I started investing in insurtech startups, I noticed that the barriers to entry were dramatically higher for any company that wanted to just touch the consumer. If they wanted to offer innovative insurance products themselves, it was borderline impossible to find an insurance company that was willing to support emerging markets or emerging technologies first," he said.
The insurance industry is naturally risk-averse, but for Maffeo, it's overly averse to the point that it's incentivized to do nothing. The genesis for Boost Insurance came from Marqueta, an open application programming interface (API) issuer processor in the payment space, and a company Maffeo invested in during his venture cap years. "They had built a core processor from scratch along with all the capital and compliance infrastructure one needs to issue cards to their end-users, so it was inspiring to see fintech companies plugging into Marqueta in issuing cards but also companies from completely outside of financial services like DoorDash, Instacart and even Coinbase that we're using the core platform to issue cards," he said.
As a result, Maffeo and the team created a similar insurance model to help insurtech companies and any technology company offer better insurance products to their end-users. "One of the core ethos at Boost is to support any insurance product that insures the risks that matter to the modern consumer, so anyone can buy renters, homeowners or auto insurance, but what are you going to do about gig economy and sharing economy -- these emerging risks that really matter to today's consumer," he said, adding that cryptocurrency is a perfect example of the risk of today's consumer. Breach Insurance approached Maffeo's Boost, looking for an insurance partner that could support their concept of insuring retail crypto wallets and enable them to get to market.
"We spent several months with the Breach team -- who are the boots-on-the-ground subject matter experts in the crypto space -- developing an insurance policy from scratch that never existed before that's offered to their end-users. So, we developed the insurance product; we use alternative datasets that other insurance companies are neither willing or capable of evaluating, to create a better risk model around this new emerging asset class," Maffeo said. "We got it to market and then configured it into our technology systems, and it made it available via the Boosting API. So now any company can come and plugin and offer you know embedded white-labeled crypto-insurance product to their end-user."
In addition to powering Crypto Shield, Boost and Breach have partnered to source and secure reinsurance backing from Relm Insurance, which insures companies operating across the crypto ecosystem.