One vital necessity for a business is insurance. However, cryptocurrency exchanges in South Korea are finding it extremely difficult in finding insurers due to recent hacks.
Ask any person who owns a business about the importance of insurance, and they’ll give you a litany of reasons. Insurance is a bulwark against theft, natural disasters, someone slipping and falling, and a host of other potential problems. Cryptocurrency exchanges in South Korea know the importance of being insured, but they’re having a devil of a time getting any.
Insurance Denied
Currently, there are four cryptocurrency exchanges in South Korea that have insurance. Upbit currently has a policy worth up to $4.49 million for “liability for damages of personal information leakage.” The three other exchanges (Bithumb, Coinone, and Korbit) have a liability limit of $2.7 million.
The Korean Blockchain Association had been in negotiations with several insurance companies: Hanwha General Insurance Co. and Hyundai Marine & Fire Insurance Co. The goal was to find a way to get insurance policies for the association’s cryptocurrency exchange members.
Negotiations between the two sides had been ongoing since April. It appeared that some resolution was in sight as the association had picked out a preferred bidder, but then several exchanges were hacked.
Insurers Jittery About Exchanges
Needless to say, the hacks on Coinrail and Bithumb caused the insurance companies to pause on offering policies to the exchanges. Coinrail lost over $40 million in cryptocurrencies. The hack of Bithumb resulted in $32 million in assets being stolen.
As one would expect, the size of the losses threw cold water on the negotiations. The insurance companies discussed their concerns through an official, who said:
The Korea Blockchain Association emphasized a stronger internal control system and security at the earlier sessions. But we cannot trust it as even the largest cryptocurrency exchange in South Korea was exposed to cyber attacks. There are no statistics related to the risks of virtual currencies both at home and abroad and it is still not sure whether an insurer can accept exchanges as its policyholders as a group, which are smaller and riskier than Bithumb.
As seen from the amounts above for insured exchanges, insurance companies will only pay out a percentage of what is stolen. Yet the security risks posed by exchanges is too high at the moment for insurers to take a chance. When a hack of an exchange occurs, the resulting losses tend to be in the tens of millions. Throw in the fact that a hack can come from anywhere on the planet, the risks just seem to keep compounding for insurance companies.
For the time being, it looks like cryptocurrency exchanges in South Korea are out of luck. If stronger safety protocols are implemented, and enough time passes without a major breach of security, then insurers might be more willing to come back to the table.
Do you think insurance companies should insure exchanges at the present time, or should they hold off? Let us know in the comments below.
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