The takeaway:Coinbase is exploring plans to set up its own “captive” insurance company, industry sources said. At the start of this year, insurance broker Aon began establishing captive companies in the Cayman Islands, working with a handful of cryptocurrency firms. Aon says a captive structure can help firms get access to additional coverage at more reasonable prices. Insurance for crypto remains scarce, and major exchanges Kraken and Huobi say they simply self-insure by setting aside coins to cover losses from thefts or hacks.
Cryptocurrency exchange Coinbase is in talks to set up its own regulated insurance company with the help of insurance broker giant Aon, industry sources told CoinDesk.
Establishing “captive” insurance subsidiaries, wholly owned by the firm being insured, is a time-honored way for corporations to reduce costs and improve access to reinsurance markets (a form of insurance purchased by insurance companies in order to mitigate risk). Nearly all Fortune 500 companies and thousands of midsize firms maintain captives, according to a December 2018 article in trade publication CPA Journal.
Coinbase and Aon see this structure as potentially part of the answer to the shortage of insurance available to crypto exchanges, the sources said. While Coinbase has obtained more coverage than most, often exchanges just self-insure by setting aside a bunch of coins to cover losses in the event of a hack or disappearance of customer funds. The problem with that approach is its lack of a formal structure, creating the temptation to access the funds for other purposes and ambiguity about how much coverage a firm actually has.
With a captive, on the other hand, the funds are segregated and held in a regulated, audited vehicle, which can help the firm go out and attain more cover from the reinsurance market. To be clear: the captive would insure only its parent company, not competitors.
Neither Aon nor Coinbas...