Last Updated: 01 April 2026
Understanding Insurance in Digital Asset Custody
Insurance is one of the most frequently discussed topics during institutional onboarding at Komainu. While it plays a key role in risk mitigation, the digital asset insurance market is still maturing. This guide explores the realities, misconceptions, and what institutions should look for when evaluating custodial insurance.
Why it matters
For institutions entering the digital asset space, understanding the nuances of insurance is critical. Unlike traditional finance, the digital asset insurance market is nascent (the first crypto policy was placed in 2014), with limited capacity and evolving standards. Misinterpreting coverage can lead to misplaced confidence or overlooked risks. A well-informed approach helps institutions make better decisions when selecting a custodian.
Deep Dive: The Realities of Custodial Insurance
What Insurance Can (and Can’t) Do
Insurance is a key component of a broader risk management framework. At Komainu, we view it as part of a package that includes:
- Regulatory oversight
- Segregation of assets
- Strong governance and operational controls
- Certified security procedures
Insurance should never be considered alone as a silver bullet.
Common Misconceptions
- Bigger isn’t always better: Large headline figures can be misleading. Coverage may only apply to specific wallet types (e.g., cold storage only).
- Full coverage is impractical: Covering 100% of assets under custody would usually be prohibitively expensive and not reflective of traditional finance norms. The underwriting market is also limited in its total capacity for crypto insurance.
- Payouts aren’t guaranteed: Policies include exclusions, and in the event of a loss, clients may not be the only affected party.
The Two Main Coverage Types
1. Specie Insurance
- Covers physical risks (e.g., loss or theft of signing devices).
- More affordable, allows for higher headline figures.
- There is limited competition in the Specie market to lead programs with currently only a few leading insurers.
- In order to offer additional cover, we have in place an agreement for up to USD $820M of ‘dry powder’ available for Komainu’s customers to purchase their own “ring fenced” cover.
2. Crime Insurance
- Covers digital risks (e.g., computer fraud, theft, and dishonesty).
- More expensive, but broader in scope.
- There is more competition in the Crime insurance market.
- Policy wording continues to develop along with industry developments, for example affirmative coverage for manipulation, dishonest or fraudulent access or use of a smart contract being in scope.
Custodians usually combine both to tailor coverage to their operational model.
A maturing market becoming increasingly competitive
Insurer interest in digital asset coverage has grown steadily. While the sector was initially approached with caution due to its novelty and constant evolution, insurers now have stronger knowledge of the risks and greater expertise in underwriting them. At the same time, the digital asset industry itself has matured; major financial institutions have entered the space, lending credibility, while regulatory developments have added reassurance. Combined with today’s ‘soft’ insurance market, this has prompted insurers to pursue new opportunities.
Stronger regulatory clarity enhancing insurer appetite for digital asset risks
Alongside regulatory progress, litigation tied to digital assets has been rising in both the US and UK. This includes disputes over fraud recovery, misappropriation, and the categorization of asset types. As a result, the trajectory for regulatory oversight and claims activity is becoming clearer. Growing public scrutiny, regulatory probes, enforcement measures, and a higher probability of lawsuits from an expanding customer base are anticipated. While compliance obligations and litigation risk are increasing, clearer regulatory frameworks have generally boosted confidence and improved market conditions. Firms that are proactive, compliant, and aligned with regulatory expectations are best positioned to benefit.
Komainu’s Perspective
Now in our seventh year of purchasing insurance, we’ve seen the market evolve. Underwriters are becoming more knowledgeable, and pricing is improving. Market conditions are increasingly favourable with expanding coverage year on year. But securing coverage still requires rigorous due diligence and a strong operational foundation.
Policies are not purchased “off-the-shelf” but negotiated through a lengthy process including “risk scenario” workshops, reviews of key governance information and discussions based on the underwriters perceptions of risk. It is important to work with a trusted broker who can negotiate on behalf of the custodian.
Key Takeaways
- Insurance is one part of a broader risk mitigation strategy.
- Understand what’s behind the headline figure, not just the number.
- Look at the type, scope, and proportion of coverage.
- Consider the custodian’s track record and other safeguards such as; regulated status, assurance through controls reports, segregation of client assets and off-exchange settlement mechanisms.
What Should Clients Ask?
- What risks are actually covered under the policy?
- What proportion of total assets under custody is insured?
- What other risk mitigants are in place?