The price of Bitcoin is displayed on a screen at the lounge of Upbit in southern Seoul, Tuesday. Yonhap
Non-life insurers have been rushing to release products for virtual asset service providers ahead of the introduction of the Virtual Asset Users Protection Act, set to take effect on Friday.
The law, aimed at implementing toughened rules against illegal transactions involving virtual assets, requires virtual asset businesses to take measures such as purchasing insurance or accumulating reserves in accordance with the guidelines determined by the Financial Services Commission (FSC), to fulfill their liabilities and obligations in the event of accidents such as cyberattack or equipment failure.
In accordance with the law, Samsung Fire & Marine Insurance released the relevant product on July 12, becoming the first insurer to do so. Beeblock, a minor crypto exchange, became its first policyholder.
The contract is for one year and is renewed annually.
KB Insurance followed suit by releasing its product on Wednesday, and other insurers, including Hyundai Marine & Fire Insurance and NongHyup Property & Casualty Insurance, are also working to release theirs in time for the introduction of the new law.
As there have been no particular virtual asset-related packages in the domestic insurance market, insurers were short on relevant statistics and data, such as accident occurrence probability, which is necessary to develop their product. This led them to work with the Korean Reinsurance Company (Korean Re) to develop the product and set insurance premium rates.
On July 10 and 12, the Financial Supervisory Service approved policy clauses for virtual asset insurance, submitted jointly by 11 major non-life insurers.
All 11 insurers offer equal clauses, since the insurance product is mandatory under the law.
“There have been many inquiries from virtual asset exchanges as they will be subject to fines if they do not enroll in insurance or accumulate reserves once the law takes effect,” an official from one of the major non-life insurers in Seoul said. “We have yet to secure many subscribers though. It seems the businesses still agonize over the two options — insurance or reserves.”
This official noted that accumulating reserves may require more money, and the businesses could enroll in insurance with only about a tenth of that money.
This indicates that relatively small virtual asset service providers, with less capital flexibility, may opt more for insurance, and this may raise the risk that insurers should bear, considering that small firms would be less capable in terms of security.
Regarding this, an official from another insurer said, “This is a totally new product, meaning that both insurers and virtual asset businesses lack experience and accumulated data. At this point, it is difficult to predict what kind of accidents would occur and when.”
A representation of the virtual cryptocurrency Bitcoin / Korea Times photo by Shim Hyun-chul
Meanwhile, an official from Dunamu, the operator of Korea's largest cryptocurrency exchange, Upbit, said the company is carrying out internal discussions on whether to enroll in insurance or just set aside reserves.
"We are looking into which option is better for us," the official said. Upbit is known to be storing over 80 percent of user-deposited virtual assets in cold wallets, which operate offline and thus are safe from cyberattackers. For the assets kept in internet-connected "hot wallets," however, crypto exchanges should either buy insurance or set aside reserves.
According to the FSC, the new law requires virtual asset service providers to report illegal transactions to the financial regulator, and a life sentence can be sought against unlawful gains exceeding 5 billion won ($3.6 million).
Last year, suspicious transactions involving virtual assets soared nearly 49 percent year-on-year to over 16,000 cases, the FSC said earlier.