What is Crypto Wallet Insurance, and How Does It Work?
While cryptocurrency had a rough few months in the second half of 2022, overall adoption of crypto is higher than ever. In 2022, global crypto ownership rates reached an estimated average of 4.2%, with over 320 million crypto users worldwide, and over 15,000 businesses now accept cryptocurrency payments. Global revenue in the cryptocurrencies segment reached $32.52 billion in 2021 and is projected to reach a staggering $74.3 billion by 2027.
Cryptocurrency usage is growing faster than ever before, but there’s a giant blind spot in the market: safety. There are billions of dollars in cryptocurrency being held in online custody but less than 1% of those assets are insured.
The Glaring Safety Gap in Crypto
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. For example, the Ronin Network was recently hacked in 2022 for a shocking $614M, making it the biggest crypto hack of all time. PolyNetwork lost $611M in 2021, KuCoin lost $285M in 2020, Coincheck lost $547M in 2018, and the list goes on and on. When these kinds of hacks happen, hundreds of millions of dollars are lost and the exchanges aren’t always able to fully reimburse individual wallet holders.
The Federal Deposit Insurance Corporation (FDIC) protects patrons of traditional banks with fiat money in the event of theft, but no such protection exists for crypto institutions. If digital assets are stolen from a crypto exchange or custodian, whether or not individual wallet holders get their money back is wholly dependent on if the institution is insured and how much insurance they have.
Most crypto institutions do have a commercial insurance policy, which provides some protection to crypto wallet holders, but there is no telling when an individual would receive compensation or how much they would get back due to commercial policy limits. In the 2016 Bitfinex hack, customers lost 36% of their holdings – there was only so much that Bitfinex’s insurer would reimburse, and it was less than the total amount stolen.
What Is Crypto Wallet Insurance?
Historically, individuals have had virtually no options for protecting their cryptocurrency holdings with insurance—until now.
If you follow cryptocurrency news, you may have seen that Boost released the first crypto insurance available to individual wallet holders in April 2022. This first-of-its-kind, white-label insurance product allows individuals to buy protection for crypto wallets held through select custodians.
What Does Crypto Insurance Cover?
Boost’s crypto insurance product is currently the only insurance on the market that is available to retail wallet holders. It covers an insured person’s losses if their crypto is stolen through a breach at a qualified custodian:
If the crypto funds are stolen out of the policyholder’s wallet during a breach.
If attackers access the custodian’s email systems, and send messages from the custodian’s legitimate email domain containing fraudulent instructions for transferring funds.
Like all insurance products, crypto wallet insurance doesn’t cover every scenario that could result in a loss. For example, if the wallet holder loses their key and can no longer access their cryptocurrency, that loss would not be covered by their insurance.
How Does Crypto Wallet Insurance Work?
For the wallet holder, crypto wallet insurance functions very similarly to other types of insurance. The individual crypto holder buys a policy to cover a specific wallet held at a qualified custodian. The amount covered is usually the value of the crypto held in the wallet when the policy is purchased. However, Boost’s crypto insurance product offers the option to extend coverage up to 125% of the insured amount to account for fluctuations in cryptocurrency value.
If the custodian is later breached, and the wallet holder’s assets are stolen, the insured individual is protected from loss. Just like with any other insurance, they can file a claim, and receive the compensation they’re entitled to under their policy.
Even if the custodian suffers a hack severe enough that it’s forced to give haircuts to its wallet holders, a person with an individual crypto wallet insurance policy could ensure that they, at least, recover the full value of their stolen assets.
How Crypto Insurance Can Benefit Your Business and Customers
If your company provides goods or services related to crypto, offering this extra layer of safety to your customers is a great opportunity to increase your revenue, expand your business, and enhance your customer relationships.
1. Increase Revenue and Customer Retention
White-labeled, embedded insurance is a big opportunity for your business to build new streams of recurring revenue. In 2021 alone, the insurance market amassed over $700B in gross written premiums, and that number is only projected to grow.
Rather than trying to sell crypto wallet insurance into a new market of customers, you would be selling to the same audience that you’ve already spent time and money acquiring. Insurance is also a very “sticky” product with a high customer retention rate. White-label, embedded crypto insurance allows you to connect with your existing customers on a new level and establish a deeper, ongoing customer relationship with steady monthly premium payments.
2. Provide a needed service and improve customer satisfaction
Offering crypto wallet insurance is a great way to improve customer satisfaction and positive brand association. You can add value by meeting a genuine need and giving your customers peace of mind about the safety of their crypto assets. If your customers are ever in a position where their assets were lost in a hacking event, they can associate their protected assets and reimbursement with your brand.
Additionally, tech-savvy crypto holders will appreciate the all-digital process - still a rarity in the insurance industry. Boost’s insurtech platform allows your customers to purchase and manage every aspect of their insurance policy in seconds, right from your website or app.
3. Differentiate yourself from the crowd
By offering this first-of-its-kind crypto wallet insurance product, you have the chance to differentiate yourself as uniquely secure and customer-focused by providing your customers with valuable protection. Because this is a new product in crypto and in insurance, by getting in on the ground floor, you can gain an edge in both markets.
Interested in offering crypto wallet insurance to your customers? A Boost expert can help you get started today.