Today Arch Insurance (UK) announced a collaboration with brokers Marsh for Blue Vault Digital Asset protection. The global product provides insurance cover for private keys used to control digital assets or cryptocurrencies on a blockchain. The keys must be held in traditional vault facilities, and coverage is for up to $150 million. However, the offering is innovative because the risk covered extends beyond storage to the lifecycle of the keys, including key generation.
This distinction is critical because even if the keys are securely stored in a vault but have been copied in advance by an employee or thief, the insurance will cover a loss.
The risk is underwritten by Lloyd’s syndicates including Arch 2012 and Canopius 4444.
Vault storage of digital assets or cryptocurrencies is traditionally grouped under Fine Art and Specie insurance.
“When it comes to the critical risk around the generation and storage of digital assets, it is not just the way sensitive material is stored, but a complete and detailed understanding of the entire life cycle of the private keys,” said James Croome, Arch’s VP of Fine Art and Specie.”
He continued: “A breach at any stage could cause a financial loss for our clients, so it is the secure generation, transfer and storage of knowledge, not simply the possession of data, that is our paramount underwriting consideration. The importance of this distinction cannot be overestimated and our insurance policy wording was very deliberately constructed to manage this risk.”
Storage of digital asset keys in a vault is referred to as a cold wallet. The risks are higher for a hot wallet which makes the keys available online for transactions. One could compare a cold and hot wallet to money in a bank vault, versus cash in transit by a secure courier. The latter has a far higher risk of theft.
But hot wallet cover can be rather pricey. That said, there is currently a trend to using more sophisticated technical solutions to protect hot wallets so that the assets are available for online trading. That’s especially important in volatile markets and to earn income from “staking”, the blockchain equivalent of interest.
The Blue Vault cold wallet solution will appeal to those that have very substantial holdings and have no intention of trading them soon. This could include blockchain protocols themselves, and exchanges which store currencies on behalf of users and statistically only need to keep a small proportion “hot”.
Marsh is active in brokering significant digital asset coverage through its U.S. Digital Asset Risk Transfer (DART) team. Earlier this month it hired Adam Wickens in the UK to help to develop new insurance solutions for digital assets. The market for digital asset and cryptocurrency insurance is maturing, with a marked increase in supply compared to a couple of years ago.
Marsh has also developed a proof of insurance blockchain application.