In Rare Deal, Crypto Custodian Wins Insurance on Full Value of Client Assets

feature

Marsh & McLennan, the world’s largest insurance broker, has arranged an unusually generous and comprehensive insurance program for a new cryptocurrency custodian called KNØX.

Unveiled Tuesday, Montreal-based KNØX is courting wealth managers and hedge funds with its cold storage service, in which the cryptographic private keys to a wallet are kept offline. To give potential clients additional peace of mind, the insurance arranged by Marsh covers them in case of external theft and internal collusion, up to the full value of their holdings.

By contrast, often insurance policies covering crypto assets are shared across multiple clients of a custodian, explained Alex Daskalov, co-founder and CEO of KNØX. For example, a custodian holding $1 billion in assets, and advertising a $100 million insurance policy may only be 10 percent insured, in which case the customer is given a false sense of security, Daskalov argued. If the customer were to experience a total loss of $100 million they would only be reimbursed $10 million.

The KNØX program was developed with Marsh to remove ambiguity of this sort, Daskalov told CoinDesk:

“Often we see people purchase an insurance policy and then hold in the aggregate funds well above the limit of that insurance policy. So for us, it was an important guarantee that when a customer is on-boarded to our platform, the full value of their assets is insured.”

That’s not to say the cover is limitless. “There is, of course, an upper ceiling,” Daskalov acknowledged, without saying precisely what it is.

Asked if KNØX was ready to hold and insure north of $100 million for any of its customers, Daskalov said this would “not be a problem.” (To put that figure in context, until recently, the largest amount of insurance cover heard of in the crypto space was when Coinbase was reported to have up to $255 million).

Jennifer Hustwitt, senior vice president at Marsh, told CoinDesk the insurance cover being offered with the KNØX solution was led by insurance company Arch and supported by various syndicates at Lloyd’s of London.

Freshly funded

KNØX recently raised $6.2 million in funding led by Initialized and iNovia, with participation from Fidelity Investments Canada, FJ Labs, and Ferst Capital.

Daskalov said that for custodying and insuring 100 percent of a customer’s assets, KN0X would charge a fee starting at 1 percent of assets and work down depending on how much business was being conducted. To get a customer’s assets out of cold storage in order to trade would normally take an hour, although the service level agreements (SLAs) are more conservative, he said.

While scarce, crypto insurance cover is popping into the headlines with increasing regularity, thanks to the likes of blockchain security firm BitGo touting $100 million cover from Lloyd’s and Coinbase exploring new avenues with the number two insurance broker Aon, which is also working with custody providers Anchorage and Volt.

Hustwitt said there has been a net expansion of insurance capacity available for digital asset risks in the past six months.

Some carriers are starting to participate in programs who previously had not and this is edging up the capacity and size of insurance deals, she said. “At any given time the amount of overall capacity will depend on a risk-by-risk basis. Having said that, there is upwards of $750 million to $1 billion in potential insurance capacity available across specie and financial institutions insurance markets.”

A caveat would be that the carriers participating and the capacity changes on a month to month basis, said Hiustwitt, concluding: