Mitsui Sumitomo Insurance is offering bitcoin exchanges around the world a new insurance policy. Insurance companies have historically insured bitcoin businesses with one-off policies made specifically for them, and many exchanges were unable to find any insurance.
The plan’s total theft cover ranges from ten million yen (US$88,500) up to one billion yen (US$8.85 million). It also covers loss from internal and external threats, including employee theft, mistakes, cyberattacks, and other unauthorized access.
Additional to the recovery amount, the policy comes with a range of damage control and prevention services. “In order to prevent damage caused by cyber attacks, targeted mail training and information leakage risk,” the plan’s announcement states, “we provide cyber risk countermeasure services such as security diagnosis and checklist for employees.”
The new insurance product was developed in partnership with Japan’s largest exchange, Bitflyer. The exchange helped develop a policy that protects against losses at both the exchange and customer levels, and is the also the first policyholder.
The company has had two fundraising rounds with the latest in April of this year when BitFlyer raised three billion yen, (US$27m) in a Series C funding round. The fundraiser was, at the time, the largest FinTech investment round in the country’s history. Added to the previous 510 million yen (US$4.5m) round last August, BitFlyer has raised close to $34 million. The company now offers several other products like ForEx trading, a Japanese news portal, their own commercial Lightning Network, and a bitcoin-based crowdfunding platform.
BitFlyer now accounts for an overwhelming 68 percent of the yen trading volume. The exchange had only a trickle of trades this time last year, but is now the sixth highest-volume bitcoin exchange globally, behind only the top five Chinese exchanges.
Two important pieces of legislation earlier this year made Japan a much better country than most to run a bitcoin business. In March, Japan’s Executive Branch, the Cabinet, approved a bill on digital currencies that treats them as, “asset-like values that can be used in making payments and be transferred digitally.”
A bill to regulate digital currency operators followed in May. By August this year the yen was the new number two currency for bitcoin trading. It has stayed there ever since, hovering above four times the daily volume in USD trades.
According to an August prediction by Japanese market research firm Seed Planning, the total amount of bitcoin transactions at Japanese exchanges in yen will quadruple between 2016 and 2017.
“We have seen and yet also noticed a trend where the investors who previously traded foreign currencies on the margin take up and switch into Bitcoin trading.”
– Seed Planning
The new insurance policy can also provide cover to in the rest of the world. The majority of bitcoin platforms are uninsured, although Coinbase, Xapo, Circle, and Gemini all have cover in place, and there have been various insurance attempts.
A previous wallet service named Elliptic Vault was likely to be the first ever insured bitcoin service, having launched in January 2014 and naming Lloyd’s as their insurer. Unfortunately for them, Lloyds backed out of the deal, but the service was able to find another insurer, CBC insurance, a few months later. The startup has since reformatted their business to offer a blockchain forensics service.
Later in the year, the Great American Insurance company offered the first official Bitcoin Insurance coverage policy to businesses, although details of the plan are not available on their site, no known bitcoin companies have claimed that they were customers.
In November of the same year, bitcoin vault Xapo announced that they were using AMBest to insure their high-security vaults. Soon afterward Coinbase and BitGo followed suit, making insurance protection a common feature in the largest bitcoin wallet services. Still, each known case of insurance coverage has been a custom package.
The largest bitcoin exchange by USD volume, Bitfinex, was thought to be insured when it was hacked for over US$72 million worth of bitcoins. Customers thought that their coins were insured as Bitfinex advertised that all customer funds were held in BitGo wallets, which are covered.
Unfortunately for the exchange’s customers, the Bitfinex configuration was “unique” and BitGo’s wallets were not to blame. Their insurance company would not cover the Bitfinex loss, and to this day the exchange still owes tens of millions of dollars to their customers, which they have been slowly paying back using IOU tokens.
If BitFinex had been able to purchase Mitsui Sumitomo’s bitcoin exchange insurance policy, the Japanese company wouldn’t have covered more than $8.85 million worth of the damages, around 12 percent the amount stolen. The extra services offered may have helped the exchange in several other ways, or possibly have prevented the hack altogether.