Due to the recent series of cyber attacks, cryptocurrency exchanges are having a hard time taking out an insurnace policy. The prospects of “group negotiations” with insurers pursued by the association of exchanges for its members are still remote.
According to the Korea Blockchain Association and insurance industry sources on June 24, the association is in talks with Hyundai Marine & Fire Insurance Co. and Hanwha General Insurance Co. over how virtual currency exchanges can take out an insurance policy.
The association has been continuously holding negotiations with insurers from April on behalf of its member exchanges. This is because insurance companies are reluctant to accept cryptocurrency exchanges as their policyholders due to their credibility and security issues. The association was planning to select an insurer and get its members insured.
It was considered a win-win plan as exchanges can find an insurer, which in turn can secure numerous customers at one sitting. Previously, the association even held a briefing session for insurance firms and selected a preferred bidder. However, the association’s efforts are highly likely to come to nothing as South Korea-based virtual currency exchange Bithumb was recently hacked. Insurance companies are becoming defensive since the damage was worth 35 billion won (US$31.46 million).
An official from the insurance industry said, “The Korea Blockchain Association emphasized a stronger internal control system and security at the earlier sessions. But we cannot trust it as even the largest cryptocurrency exchange in South Korea was exposed to cyber attacks. There are no statistics related to the risks of virtual currencies both at home and abroad and it is still not sure whether an insurer can accept exchanges as its policyholders as a group, which are smaller and riskier than Bithumb.”
In particular, insurance companies also need to lower risks by making a contract with reinsurance firms when contracting with cryptocurrency exchanges which are bigger in terms of transaction volume and riskier. However, reinsurance companies don’t want to conclude insurance contracts with insurance firms as they don’t trust the security of virtual currency exchanges.
To be sure, insurance companies can make a contract after they raise premiums for virtual currency exchanges and establish security. However, the question over effectiveness arises even when cryptocurrency exchanges are insured. Currently, the limit of liabilities for insurances related to virtual currency exchanges comes to 3 billion to 5 billion won (US$2.7 million to US$4.49 million).
There are only four cryptocurrency exchanges insured – Bithumb, Upbit, Coinone and Korbit. Upbit is insured with Samsung Fire & Marine Insurance Co. for “liability for damages of personal information leakage” with the highest amount of insurance at 5 billion won (US$4.49 million). Other three exchanges have the limit of liabilities at 3 billion won (US$2.7 million), raising concerns over low effectiveness. Bithumb, which has 35 billion won (US$31.46 million) worth of virtual currencies stolen through the latest cyber attack, is insured with Hyundai Marine & Fire Insurance and Heungkuk Fire & Marine Insurance Co. but it can only receive an insurance payment of up to 6 billion won (US$5.39 million).
An official from cryptocurrency exchanges said, “Customers’ distrust over security keeps growing with the recent series of cyber attacks but it is impossible for exchanges to come up with specific measures that can remove customers’ unrest.”