One of the leading Crypto Exchange in the United States, Coinbase is looking forward to releasing its captive insurance company, media news outlet Coindesk said on July 10.
According to the report, industry sources stated that Coinbase is planning to release its captive insurance company with insurance brokage company Aon.
As per the accountancy news outlet CPAJournal, “a captive insurance company is a subsidiary formed by a private company to finance its retained losses in a formal structure under the guidance of an appropriate state insurance department.”
Developing "captive" insurance subsidiaries, entirely owned by the firm being insured, is a respected way for firms to decrease costs and enhance access to reinsurance markets. Almost all the Fortune 500 firms and thousands of midsize companies hold captives, according to the December 2018 post in trade publication CPA Journal.
Coinbase and Aon see the insurance subsidiary as a potential solution to the so-called shortage of insurance that's there for the crypto exchanges.
According to the report, crypto exchanges build some crypto assets to cover any asset losses in any case of a hack. Even now, the firm doesn't have a proper formal structure, and it enables the firm to access the funds for any other reason, reducing the coverage. By the involvement of captive insurance firm, funds are regulated, audited, and separated.
However, neither Coinbase nor Aon have reportedly responded to the outlet's inquiry about their partnership; the insurance firm mainly said that it had built the industry's first insurance captive this year, for an unknown firm. Jacqueline Quintal, who is the managing director and the financial institutions' practice leader at Aon, said that the crypto exchanges are moving towards this solution, Quintal stated:
“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.”
Before this in April 2019, it was being noted that Coinbase and Aon have worked together. At that time, the insurance firm helped Coinbase to collect $255 million in hot wallet coverage.