Coinbase may have started as a cryptocurrency exchange and wallet provider, but it isn’t opposed to diversification. The company is apparently considering introducing a “captive insurance company,” which would be launched through a partnership with the Aon insurance brokerage firm.
Aon has been helping create captive insurance companies in the Cayman Islands at the beginning of the year. The term refers to a type of subsidiary established by a private company in order to certain financial losses in accordance with a regulated state insurance department. In other words, instead of paying insurance premiums, that money would go toward the subsidiary’s insurance capabilities.
There is a recognizable lack of insurance coverage for the crypto industry. Exchanges, in particular, are vulnerable to losses incurred from hacks and other forms of theft and often resort to setting aside a portion of their earnings to cover such losses. Kraken, for example, has said that its balance sheet is basically a representation of its insurance fund. However, this solution isn’t ideal, as it doesn’t provide any formal recourse or include any regulatory guidance – the captive insurance solutions do.
Aon already has a small group of captive clients and the company’s managing director, Jacqueline Quintal, expects more movement toward adoption. She said earlier this year, “There is a lack of capacity and some are uncomfortable with what is available in the marketplace and are looking to alternative solutions. I think the path for most will be to buy some amount of traditional insurance first and then to explore alternative structures, potentially including a captive — and we are having more and more of these conversations.”
Kraken decided to set aside around $100 million of its own revenue after not being able to find a suitable public or private insurance alternative.