[research] Bitcoin insurance, do we need it?

[bitbudget]

Imagine there's a credible company that insures individual bitcoin accounts on various services like exchanges, wallets, pools etc.
Would you sign up?

Discussion on Reddit
http://www.reddit.com/r/Bitcoin/comments/23sdtj/bitcoin_insurance_do_we_need_it

[bitbudget]

Tester24834 > I think MANY would like this kind of service, including myself. I don't expect Bitcoin to be mainstream without insurance really.
It's why people use banks. Nobody is infallible, why not get a backup?

[blacksails]

That would be a good thing IMO. However, I think that it's not very lucrative to insurance companies, since it would be very easy to "hack" your own account, and then get reimbursed from the insurance company. The company would probably go bankrupt pretty quick.

[bryant.coleman]

It is very difficult to track the bitcoin robberies. So the insurance companies will have a hard time in determining whether the alleged robbery is a fake one stage managed by the owner or not.

[bitbudget]

I think the safest way would be to only cover cases that don't depend upon customers' good intentions like

• unauthorized access to company server
• employee negligence such as revelation or reset of user credentials
• theft of company assets by its employees
• seizure of company assets by authorities
• company insolvency

[5flags]

How would an insurance company measure risk for an individual client?

There would have to be a Bitcoin Security Standard™ - some code of practice for companies holding Bitcoin. There would need to be regular, unannounced security audits, pen testing etc. It's not a trivial task.

[Elwar]

This already exists. You can pay 2% to have your bitcoins in a Bitcoin vault.

[5flags]

This already exists. You can pay 2% to have your bitcoins in a Bitcoin vault.

Yes, but that's for cold storage, and it is much easier to quantify risk.

It is the exchanges and web wallets themselves that would have to take out the insurance if this was to work.

[bitbudget]

Ideally all major companies that deal with crypto must be insured. That way users would be able to differentiate between reliable businesses and scammers.

[5flags]

Ideally all major companies that deal with crypto must be insured. That way users would be able to differentiate between reliable businesses and scammers.

Which brings us back to the question; as an insurance company, how to I rate the risk of any one particular web wallet or exchange suffering a loss?

[bryant.coleman]

This already exists. You can pay 2% to have your bitcoins in a Bitcoin vault.

And how can you be sure that the coins are not going to be stolen from the Bitcoin vault. Will they refund the coins, if someone steals them?

[bitbudget]

They probably provide some kind of legal contract at registration. Anyone tried that vault yet?

[gagalady]

It would be good for us, but I doubt there will be companies like that because they would probably go bankrupt. Maybe there will be few but that's risky business looking from the company operators side.

[bitbudget]

A company like that could compensate risks with higher premiums if they find customers willing to pay high premiums.

[thresher]

Llyod's of London started out insuring cargo on ships (I believe, so don't tear me a new one.)
I can't imagine how many loads of cargo were lost in the 7th century, when there were no cameras, fingerprints, dna, etc, yet somehow Llyods is still around.
I am aware they are not a "traditional" insurance company, but i'd imagine that's where bitcoin insurance would begin.