Digital Asset Insurance Landscape Presentation

James C. Knox. Esq.

February 26, 2020
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 Digital Asset Exchange Hacks
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 Reported ICO Companies Involved in Fraud 

$660,000,000 $15,000,000

$5,000,000

$2,900,000

$2,900,000

$2,700,000

$700,000

$375,000

$300,000

$300,000

$250,000

$200,000
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Challenges in the Insurance Landscape 

“There are great 

concerns regarding 

virtual currencies 

and the justice 

ministry is basically 

preparing a bill to 

ban cryptocurrency 

trading through 

exchanges,” - Justice minister Park Sang-ki 

 “Attempting to conceal what we allege to 

be fraudulent securities offerings under the 

veneer of technological terms like ‘ICO’ or 

‘cryptocurrency’ will not escape the 

Commission’s oversight or its efforts to 

protect investors.”- Shamoil T. Shipchandler, Director of the SEC’s 

Fort Worth Regional Office 

“What we will do and 

we are doing is looking 

for fraud and 

manipulation,” Giancarlo 

said. “And we intend to 

be very aggressive.” CFTC 

Chairman Christopher Giancarlo 

“A number of concerns have been raised 

regarding the cryptocurrency and ICO 

markets, including that, as they are currently 

operating, there is substantially less investor 

protection than in our traditional securities 

markets, with correspondingly greater 

opportunities for fraud and manipulation.” SEC 

Chairman Jay Clayton 
Risk Distribution – Digital Asset Industry Landscape

Cold Specie Storage

Surety Bonds

Security 

Tokens

Technology E&O

Broker Dealers

Cyber D&O 

Insurance

Custodians

Crime-hot Wallet Cover

Traditional Initial Coin Offerings

Asset 

Manager

Advisors

Exchanges 

Miners 

Bespoke 

Blockchai

n Use

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6

Factors Limiting the Insurance Marketplace

Uncertain 

Regulatory 

Environment

Perceived 

Reputational Risk

Limited Financial 

Performance 

History 

Negative Press 

Limited Loss 

History 

High Volatility

High

Valuations

High

Financial 

Projections
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Coverages to Consider

Coverages to 

Consider

Investment Advisor, Fund and Financial 

Services D&O/E&O:

Coverage for rendering investment 

management services, fund management 

and other financial services.

Technology Errors & Omissions: 

Coverage for claims which allege the 

products/platforms' failure to perform as 

intended or expected, and financial loss 

of a third party arising from the same. 

Cyber Liability Insurance: 

Coverage for claims from 

unauthorized access to insured’s 

network which results in the loss of 

information. Coverage also includes 

forensic costs to investigate breach 

and credit monitoring to individuals 

affected. 

Directors & Officers Liability:

Protects individuals in their capacity 

as directors & officers of the 

company. Includes coverage for 

defense costs.

Crime

Coverage for losses caused by 

employee dishonesty, first and third 

party theft, forgery or alternation, 

computer fraud, funds transfer fraud, 

various money and securities fraud, or 

the destruction or disappearance of 

funds.
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Digital Asset-D&O Marketplace and Insurer Appetite

 Risk philosophy –

“checking the box” or 

is adequate coverage 

desired?

 Coverage terms are 

varied and insurer 

appetite is constantly 

changing—primary 

capacity is limited

 Process is critical – the 

limited pool of insurers 

will not revise terms for 

new broker partners. A 

best in class approach 

from the outset is 

necessary.

Market 

Strategy Primary

Limits / retention / 

pricing objectives

 Premiums from leading 

insurers are high 

relative to the general 

D&O marketplace

 Pressure(s): charging 

for the risk and/or 

severely limiting 

coverage (e.g., 

regulatory exclusions)

 Retention levels 

remain high

 Capacity is generally 

offered in layers 

between $1M - $5M; 

building large capacity 

requires investing in a 

$5M primary limit

Excess
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Digital Asset-Crime Marketplace and Insurer Appetite

 Aon has a manuscript 

form to address crime 

exposure

 Coverage for theft, 

damage or destruction 

of digital assets

 Capacity is in flux –

insurer appetite is 

constantly changing 

 Coverage for hot 

wallets is extremely 

limited and requires a 

detailed presentation 

by the proposed 

Insured to the 

marketplace 

Market 

Strategy Primary

Limits / retention / 

pricing objectives

 Lloyd’s is the primary 

focus

 Specie solutions may 

be available for cold 

storage-only risks

 Premiums are high 

relative to the general 

Crime marketplace

Excess
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Cyber and Tech E&O Marketplace and Insurer Appetite

 Aon uses market 

forms, but tailors them 

to match needs of 

client

 Coverage for theft, 

damage or destruction 

of data, income loss, 

breach management 

costs, privacy liability, 

and errors and 

omissions from 

technology services

 Capacity is in flux –

insurer appetite is 

nascent and low

 Aon is working with 

Lloyd’s to produce a 

proprietary form.

Market 

Strategy Primary

Limits / retention / 

pricing objectives

 Axis and Munich Re 

are the main primary 

leads

 Premiums are high 

relative to the general 

Cyber and Tech E&O 

marketplace

 Cyber and Tech E&O 

market is much less 

developed than either 

the Crime or Specie 

markets.

 Retention levels 

remain high

 Capacity is generally 

offered in layers 

between $1M - $5M; 

 Total capacity 

generally around $10M

Excess
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1. Introduction / Pitch deck (if available).

2. Description of general business. How is revenue generated?

3. High level summary of digital asset and blockchain environment. 

4. Country of domicile and registration. Description of geographic locations and any being avoided.

5. Summary of board and management team (attach bios). Expertise in the digital asset and blockchain space.

6. Ownership / capitalization table and funding levels. Description of fundraising model and process details. Will documents be filed with 

regulators? 

7. Notable partnerships / associations. Relative market positioning (e.g., client base, reviews) and market differentiators (e.g., brand reputation).

8. Financial statements and projections. 

9. Details of legal counsel, accountants, banking partners, etc.

10. Comment on regulatory landscape, company culture, and communication with investors. 

11. Describe processes to comply with KYC/AML and GDPR.

12. What controls are in place to assess and address financial crime risks? Have these controls been vetted by counsel and are underwriters privy 

to the opinion of any attorney(s) that have reviewed and approved the controls?

13. Details of security protocols and overall investment in security. Third party independent audits/assessments?

14. Storage details: hot / cold; first or third party custodian? Segregation of customer funds (detail on hot/cold processes and technologies 

used). Detail of security controls around each storage methodology. How often are currencies traded or moved between storages? Which 

exchanges do you use (if any)? Is dual sign-off required for financial transactions? Describe any multi-sig or sharding processes.

15. Approach to customer service. How are customer service lag times addressed during high volume?

16. Detail on any outages in the last 12 months. Capacity planning for high volume and onboarding/funds transfer process?

17. Disaster recovery / business continuity, testing (schedule and actual failover tests), loss income estimations, datacenter locations and operators.

18. M&A – process, due diligence, integration.

19. Number of employees and headcount breakout by business unit.

20. What background checks are performed on employees and what financial crime training is provided? 

21. Discuss any past, present, and potential future litigation.

Digital Asset-Underwriting Information requested by insurance companies