Cryptocurrency exchange Coinbase is teaming up with insurance provider Aon to launch a captive insurance subsidiary that would solely serve the exchange.
Major cryptocurrency exchange Coinbase is preparing to launch its own insurance company, according to a report from CoinDesk.
The exchange is reportedly in advanced talks with insurance giant Aon to launch a captive insurance subsidiary, an insurance company solely owned by the firm being insured. Captives are maintained by firms to reduce insurance costs and improve access to reinsurance products.
A partnership such as this could be a solution to the reported shortage of insurance options that exists for cryptocurrency exchanges. Exchanges often have to self-insure by setting money aside for rainy days. Binance’s Secure Asset Fund for Users (SAFU) is a popular example. SAFU is an emergency insurance fund set aside by the exchange in case of potential loss of funds due to security breaches. Huobi and Kraken have emergency funds too.
However, given the lack of proper structure and regulation, the companies can access the funds and use them for other purposes. This could go on to decrease available coverage in the long run.
A captive insurance model like this could bring a stable, regulated and segregated infrastructure to the crypto insurance sub-industry.
“If a firm is self-insuring, they’ve accepted responsibility for funding 100% of any loss,” Aon’s managing director, Jacqueline Quintal, said, per CoinDesk. “Captives, in comparison, provide a means through which firms can access insurance or reinsurance, while also pre-funding self-insured loss amounts in a more formal way than simply setting aside capital.”Earlier this year, Coinbase shared details of its $255 million insurance coverage for its hot wallets, which was purchased from Aon.