Contact Us

Crypto Wallet Insurance: Do You Actually Need It?

By The Boost Team on Aug 7, 2022
5 min read
Learn how crypto wallet insurance can help protect your digital assets.

If you follow cryptocurrency news, you may have seen that Boost released the first crypto insurance available to individual wallet holders earlier this year. While institutions like exchanges already had access to commercial insurance, Boost’s crypto wallet insurance is the first opportunity for most individual crypto owners to buy insurance protection for their digital assets.

For many crypto holders, however, this raised a new question: since most exchanges do have commercial insurance to protect against theft and other potential losses from cybercrime, what exactly is the role of individual insurance? If your crypto custodian is attacked and your assets are stolen, won’t their insurance policy cover it? 

The short answer is: it’s complicated. The long answer is that there are three big reasons that individual crypto wallet insurance is a good investment.

Reason #1: There’s no cryptocurrency safety net

When you deposit fiat currency into a traditional bank account, you get more than just the bank’s assurance that your money will be safe. Thousands of banks across the US are insured by the government through the Federal Deposit Insurance Corporation (FDIC), which was established in 1933 to stabilize the US financial system after a series of catastrophic bank failures.  

The FDIC’s role is to make sure that even if a bank completely runs out of money (whether through theft or just mismanagement), the people who hold deposits at that bank don’t lose their savings. If the bank that holds your fiat currency were to fail, the FDIC would provide you with an insurance payment that covered the value of your deposit at the failed bank, up to $250,000. 

This provides a vital safety net for fiat currency deposits in financial institutions…but there’s no similar protection for cryptocurrency. If your digital assets are stolen from a crypto exchange or custodian, there’s no fallback recovery like the FDIC. Whether or not you get your money back is wholly dependent on the institution’s insurance - or your own. 

Unfortunately, this kind of loss isn’t an abstract concern, which brings us to the next reason why individual crypto wallet insurance is a smart investment.

Reason #2: Cryptocurrency theft is a significant risk

Over the past several years, cryptocurrency has become an increasingly popular target for cybercriminals. Since 2014, a number of crypto institutions have been hit by high profile hacks:

  • Ronin Network (2022) $614M

  • PolyNetwork (2021) $611M

  • Coincheck (2018) $547M

  • Mt. Gox (2014) $480M

  • KuCoin (2020) $285M

  • Nomad (2022) $190M

The increasing threat puts crypto exchanges and custodians in a constant arms race against cybercriminals. While reputable exchanges make security their top priority, the past decade of cybercrime has proven that it’s virtually impossible to guarantee that any web-facing system is 100% impenetrable. 

Adding to the challenge, many significant crypto hacks are believed to be backed by nation-state actors or large organized crime groups. Faced with determined, extremely well-resourced attackers, even the most state-of-the-art cyber security can fail. 

If your crypto custodian is breached, the contents of your wallet risk being stolen. As we saw with reason #1, if that should happen, there’s no safety net for your assets. The only way to get your money back is through insurance, but relying on your custodian’s policy carries risks of its own.

Reason #3: Commercial Insurance Limitations

Your custodian likely carries a commercial insurance policy to protect against loss from hacking and theft, which in turn provides some protection to crypto wallet holders (after all, it’s your assets that would be taken in a hack). However, there are two big limits to how much that protection can help:

Reimbursement Speed

Commercial insurance claims tend to be much more complex than claims for personal policies and take much longer to resolve. Particularly for claims involving crimes like a hack, the insurance company may require an investigation or inspection before proceeding with a settlement. While commercial claims can be resolved quickly, it’s not unusual for the process to take several months between incident and payout - or longer if there’s a dispute over the settlement amount. 

When your custodian does receive their settlement money, that is only the first step toward you recovering your losses. The custodian will need to decide how to reimburse their cryptocurrency wallet holders, then arrange to disburse the funds. This adds even more time before you see relief in your wallet.

If you hold a personal policy insuring your crypto wallet, however, it’s a whole different story. Rather than waiting for your exchange to work through its own process, you would file a claim directly with your insurance company for the value of the assets lost in the hack. With the comparatively straightforward personal line claims process, you would likely get your money back much faster than waiting for funds from your custodian’s policy to trickle down to individual wallet holders.

Policy Limits

Even the most comprehensive insurance policies have a limit on how much they’ll reimburse their policyholder. This is simply a reality of the business - insurance is all about managing risk, and unlimited payouts are a risk no carrier would be willing to take. Whether it’s $1000 or $1M,  all policies have a ceiling for their settlements - and any loss that exceeds that ceiling is the responsibility of the policyholder.

For custodians that hold a high volume of cryptocurrency, this means that the total value of their holdings may exceed the limit of their insurance - even if their insurance policy is the best that money can buy. This is a particular risk when the value of crypto is volatile, and might sharply increase from one day to the next. 

If a custodian is hacked and the losses are more than their commercial policy will cover, it can compromise their ability to reimburse their wallet holders. When that happens, individual crypto wallet holders might end up taking a “haircut” (i.e., permanently losing some of the value of their assets).

For example, in 2016, cryptocurrency exchange Bitfinex lost $72 million to hackersand their customers lost over 36% of their assets. They tried to make amends with tokens of credit, but 36% is a significant loss. Similarly, Cryptopia suffered a $16M hack in 2019 and its clients took a 12-15% haircut.   

This is another advantage of holding your own retail wallet insurance. Even if your custodian suffers a hack severe enough that it’s forced to give haircuts to its crypto wallet holders, you can ensure that you at least recover the full value of your stolen assets.

Crypto wallet insurance is one of the best ways individuals can protect their digital assets against the risk of theft. It’s available to buy from specialty insurers, and some exchanges also offer it directly to their customers (with more adding it every day). 

Interested in offering crypto wallet insurance to your customers? A Boost expert can help you get started today.

Previous articles
The top 3 takeaways from our embedded insurance consumer survey
Embedded Insurance Survey Results: What We Heard From Consumers
Feb 3, 2023
You may have heard that embedded insurance is a big opportunity to grow your business, but are your customers actually interested?  We wanted to get the story straight from the source, and so in Q4 2022 Boost surveyed 650+ US consumers. We asked about their experiences with insurance, how they felt about their options, what mattered most in their insurance purchases, and more.  Here are the top 3 things that we learned from our consumer survey results. [See Full Size] In our survey, a whopping 73% of consumers had either already bought insurance from a non-insurance brand, or would be interested in doing so. While price was mentioned most often, other reasons included brand loyalty and convenience. Trust was another important factor. 62% of respondents were interested in buying financial products from a trusted brand, rather than a bank. For millennials, the number went up to 95%. First movers might have an advantage here as well. 20% of our respondents had never been offered financial products from a retail brand - but they liked the idea. All this is promising news for companies outside the traditional insurance sphere who are looking to build revenue and customer loyalty with embedded insurance. If you can deliver the product and experience consumers are looking for, the appetite is there. It’s hardly a secret that convenience is crucial to customer experience in the digital age, so it comes as no surprise that it was important to our respondents. 59% told us that they’d be more likely to buy insurance if it were offered digitally, as part of a related transaction. Younger consumers were more likely to be enthusiastic: nearly 70% of respondents aged 18-29 were interested in buying insurance directly through a transaction on a retail website. For half our respondents, embedded insurance wasn’t a novel idea. 50% had already bought embedded insurance at least once, at the point-of-sale in a related transaction. For many consumers, insurance is a long-term purchase. 68% of our survey respondents told us they’d had the same insurance provider for at least two years, and 10% had had the same provider for more than five years. For retailers, insurance could also be an overall boost to retention. 62% of respondents said that when a retailer offered protect-your-purchase options, they were more likely to be repeat customers. Learn more about offering embedded insurance in our free guide, or contact us to get started.
Continue Reading
Learn the definition of Accident and Illness pet insurance, and how it can help your business.
What is Accident & Illness Pet Insurance? (Plus: Why You Should Offer It)
Jan 28, 2023
Pet accidents and illnesses are unfortunately common, which can cause considerable financial hardship for pet owners. The average emergency vet visit costs $800-$1500, and pet owners in America collectively spend over $34B annually on veterinary care.  If your business caters to pet owners, this presents a significant opportunity for you to offer your customers a service they need. In this blog, we’ll explain what accident and illness pet insurance is and how your business can use it to grow new recurring revenue and build deeper relationships with your customers. As its name indicates, accident and illness pet insurance is a kind of insurance policy that reimburses pet owners for necessary veterinary costs in the event of an accident or illness (up to a certain amount). Typically, a base pet insurance policy will cover emergency veterinary care, and examinations to diagnose, treat, or operate on a covered injury or illness. This can include things like: Without insurance, these services can cost hundreds or thousands of dollars. It’s not surprising that more and more Americans are considering pet health insurance to ensure they can afford care for their pets.  A standard policy will have rules about what qualifies as a “covered” issue for the purpose of reimbursement. So what exactly is considered an “accident” and what is an “illness?” The answers may seem obvious, but knowing the precise definitions can be important. If a pet owner needs a service that falls outside of those categories, they would need to add it as additional coverage in order to receive those benefits.  An accident is usually defined as something like “a sudden or unexpected event that causes injury to the pet." For example, if your cat is injured by another animal, or your dog eats a box of chocolate and needs emergency vet care. Events like these would be defined as “accidents” and be covered by most accident pet insurance policies. It should be noted, however, that if the owner causes intentional harm to their pet, that would fall under abuse and would generally not be covered.  An illness is usually defined as something like "any change to the normal healthy state of the pet, a sickness, disease, or medical condition that is not caused by an accident.” An example of an illness that would typically be covered by illness insurance would be something like heartworms, canine flu, skin rashes, diabetes, or arthritis. Due to cost and complexity, however, cancer treatment is often excluded from accident and illness policies.  The distinction between the accident and illness is important, because it can affect whether a pet’s care is covered. Many standard pet insurance policies cover both accident and illness, but there are policies that may only cover accidents. It’s important for potential policyholders to understand what they’re getting, and if it’s a good fit for their needs. Unfortunately, the short answer is “no.” As a general rule, if a pet has a pre-existing health condition, treatment for that condition will usually not be covered by the insurance policy. However, a pre-existing condition will not necessarily disqualify the pet from being covered entirely. For example, if a dog has pre-existing allergies, and his owner purchased a pet insurance policy for him, any treatments related to his allergy likely wouldn’t be covered. If the dog contracted heartworms after the policy was purchased, however, his treatment could be covered.  This is great motivation for pet owners to get insurance when their pets are young. When it comes to purchasing medical protection, “the earlier the better” very much applies, because as pets age, they are more likely to develop conditions. If a pet owner waits until their pet starts to show symptoms, it can be too late to get the financial protection they need.  Insurance needs will vary for every pet, and sometimes those needs fall outside of standard policy coverage. Some pet breeds have a higher risk of conditions requiring long-term care – while for others, the biggest risk is playing too hard at the park. To accommodate for those differences, pet owners can choose to add endorsements to their policies, such as:  Even more comprehensive policies might cover loss and theft, kennel/boarding services, or even advertising a missing pet and offering a reward for its return. Depending on the provider, pet owners can fully customize their policies and make them as robust or as simple as they need, which can save them thousands of dollars.  Now that we’ve seen how valuable accident and illness pet insurance can be for pet owners to have, let’s briefly talk about the opportunity that this product offers for pet-related business owners. There is an increasing demand for pet insurance in the United States. Since 2017, the average annual growth rate of insured pets is 21.5%. At the end of 2021, close to 4.41 million pets were insured, a 28% increase since 2020. In 2022, the total premium revenue for pet insurance was nearly $2.6 billion. That is a huge market with a promising annual growth rate.  White-labeled, embedded insurance can be a big opportunity for pet businesses to tap into that market and build new streams of recurring revenue. If your clientele is primarily pet owners, you are perfectly positioned to offer this product. Accident and illness pet insurance would be a natural addition to your product lineup, and because your customers already trust and have a relationship with you, they would be more inclined to get the coverage they need from you instead of an insurance company.  Insurance is a very “sticky” product. Due to the nature of insurance, it establishes an ongoing relationship with your customers through monthly premium payments. Not only would you have the benefit of that recurring revenue, but you also have the ongoing brand exposure that it provides. It gives you another touch point with your customers, which can only strengthen your long-term relationships with them. Modern customers expect modern experiences. Traditional insurance carriers and policies tend to be rigid with a mixture of slow offline processes and archaic online ones. By offering your customers a customizable, convenient, and entirely digital solution, you can meet your customers in the 21st century and stand out from the competition.  Embedded insurance, as its name implies, is insurance that is embedded into an existing purchasing experience–it allows your customers to buy digital pet insurance without requiring them to leave your website to complete the transaction. Another example of embedded insurance would be travel insurance for an online plane ticket or crypto wallet insurance offered on a crypto-related website.  A white-labeled insurance product is one that is completely integrated not only into your website, but also into your brand. If you were to offer white-labeled pet insurance, your customers would have no indication that the product was not created by your company.  Embedded pet insurance is a great opportunity for pet business owners to grow their revenue and deepen their customer relationships.  If you are interested in embedded accident and illness pet insurance, Get the Guide to Growing Your Revenue with Embedded Pet Insurance, and learn everything you need to know to get started.  If you’d like to speak to one of our pet insurance experts, contact us to learn more.
Continue Reading
Insurance billing 101
Insurance Billing 101
Jan 23, 2023
The insurance market is huge and growing. But when it comes to collecting those payments, insurance is a lot more complicated than most goods or services. We’ll take a look at the factors that go into calculating an insurance bill, and what options companies have for billing methods. The reason why insurance billing is so complicated can be boiled down to one thing: state-by-state differences. Since every state makes its own rules for insurance, the requirements to stay compliant can vary significantly. Businesses that sell insurance in multiple states need to pay close attention to each state’s rules. Here are 5 things that can make billing for insurance complicated: Every state imposes its own taxes and fees, sometimes with different guidelines for how they should be collected. This means that if you sell insurance in fifty states, you need to stay up to date with fifty sets of rules for when and how to add taxes to your customer’s bill.  Different insurance products can also have their own rules, depending on both the type of product and its regulatory status. Admitted products, which are products that have met regulations set by the state’s Department of Insurance, have most (but not all) taxes and fees included in the premium. For non-admitted products, however, taxes and fees are billed separately.  Taxes and fees can cause complexity for more than just the policyholder’s bill. Some are commissioned on, meaning that they’re included in the amount calculated for an insurance seller’s commission, and others are not. This is yet another set of rules an insurance organization needs to track in their billing.  Besides just having different rules about how taxes can be charged, different states may have differing rules about how to charge for the premium itself.  As we saw earlier, the premium is the cost of insurance for the entire coverage period, frequently six months or a year. Going back to our earlier example: say an insurance policy covers a 12-month period for a premium of $600, with an additional $120 in taxes and fees. Depending on the state, the premium might be billed a number of different ways: If the insured doesn’t pay their premium, what happens? The answer depends on the state. Usually you’ll send a notice that their policy will be canceled on a certain date unless they pay their bill, but the way that notice is sent may be dictated by state requirements. Some states mandate much longer notice periods before a policy can be canceled for non-payment. States may also have specific requirements around the language used in the notice, and how it’s delivered to the policyholder.  If the policyholder cancels their policy partway through the term, they may be entitled to a refund. The amount of that refund, however, can be complicated to compute.  If the entire premium was paid upfront, how much of the term has passed? The appropriate amount to refund might vary if the policyholder cancels near the beginning of the month, versus near the end. Refunds might also be prorated to account for the part of the term that’s already over, in which case the amount refunded might vary based on the day of cancellation. Even the time remaining in the term may not be straightforward to calculate - different insurance products use different calendar types, and the number of days in a “year” or “month” can vary.  Separate from the premium are the taxes and fees. Depending on the situation, these may or may not be part of the refund. Some taxes and fees are considered fully “earned” at the beginning of the installment period or at payment - which means this amount would not be returned to a policyholder who cancels early. Determining which taxes and fees are included (and which aren’t) is an important part of any insurance refund calculation. Any time an insurance policy’s coverages change, the premium amount changes too. If it comes time to renew a policy and the insured decides to add or remove coverages, the billing is fairly straightforward - the premium for the next period will reflect the new coverages.  If the policyholder wants to add new coverages before their policy term ends, however, it’s called a midterm endorsement.  This is where things can get complicated, especially if the policyholder has already made payments toward the old premium amount. The difference between the old and new premium will need to be charged or refunded to the policyholder as a reconciliation. This isn’t as simple as just charging the difference between the old and new premium. The amount required for the reconciliation will depend on the time left in the policy, the amount already paid, and more. We’ve looked at some of the factors that add complexity to calculating an insurance bill. However, determining the amount owed by the insured isn’t the end of it. There are multiple methods for how the policyholder’s premium can be collected. The main reason for this relates to how insurance is sold. Many companies that sell insurance, like insurtechs, don’t build their own insurance product in-house. Instead, they partner with another company that’s already done that work to offer their product, whether that's an insurance carrier or a white-label insurance-as-a-service provider These companies then have two options for choosing a billing method: direct billing, or agency billing. In direct billing, the policyholder pays the insurance carrier directly. With this form of billing, the company that sells the insurance is paid a commission after the carrier has received the premium. With direct billing, the insurance carrier is responsible for all the billing issues we discussed previously, from taxes and fees to refunds, cancellations, and premiums. This can make it significantly easier for the company selling the insurance to get started, as they don’t have to build their own billing function around the product.  Because the carrier or insurance-as-a-service partner already has a functional billing system for the specific insurance product being offered, all the distributing company would need to do is build an integration to their partner. This can mean a substantial increase in time-to-market with a new insurance product. With agency billing, the policyholder makes payments to the insurance distributor (i.e., the company selling the insurance product). With this form of billing, the distributor collects the commission upfront and makes retroactive, monthly payments to the insurance carrier. With agency billing, the company selling the insurance is responsible for calculating the amount owed, including taxes, fees, and any refund issues. The distributor is also responsible for the actual collection of money, which means they either need to integrate with a payment platform or build one from scratch.  This isn’t necessarily a hurdle; businesses that sell goods or services online likely already have integrated billing capabilities that allow them to accept digital payments. For example, a business that sells pet products online would already have online payment infrastructure, which could likely be used for embedded pet insurance. This has the added benefit of keeping all of the company’s business data in one place. However, some payment platforms can present user experience challenges, like policyholders having to re-enter personal information on the payment platform, after already providing it on the insurance application. For businesses that aren’t yet set up to take payments, this is a function that would need to be built out before offering insurance with the agency billing method. In almost all cases, integrating with a best-in-class payment platform will be faster and more cost-effective than trying to build a proprietary billing system in-house. If you want to learn more about insurance-as-a-service through Boost, contact us, or dive into building your insurance program with our comprehensive guide.
Continue Reading