Raymond Zenkich (Co-Founder of the First Crypto Asset Insurance Company)

Speaker A: You could see a case where if you have a limit of say $50 million, yet there is a significant price movement even intraday you may have insufficient limit. It's time work play evil.

Speaker B: I want to connect the listeners to the best of the best. Welcome to the Evolved Broker podcast. I am your host, Pat Costello, the co founder and principal at Evolve mga. Our mission for this podcast is to bring the insurance industry the best of the best. In this episode I spoke with the co founder of the very first cryptocurrency insurance firm in the world. His name is Raymond Zenkich and his firm is called Evertas. Evertas received 14 million in Series A funding the day before we recorded this episode. Raymond is a very interesting guy. He ran the first insurance and blockchain conference in North America. He's had experience at larger firms like Accenture McKinsey and has also run consulting SaaS and insurance businesses. He has served as a professor at North Northwestern School of Law as well. Just so you guys know, Evertas is a pioneer in the crypto asset insurance market. They can write in service policies, insuring custodial crypto assets and blockchain infrastructure. So bleeding edge insurance. I was super interested to learn more about their company, uh, especially with the recent bankruptcy ftx which was the third largest crypto exchange. Without further ado, here's Raymond. Raymond, welcome to the Evolved Broker podcast.

Speaker A: Thank you Pat. Great to be here.

Speaker B: You are the co founder of the world's very first crypto insurance company. That is epic in itself. But uh, by chance you guys also close 14 million in funding yesterday, is that correct?

Speaker A: That is, yes. That's very exciting news for us.

Speaker B: Congratulations. Yeah, I wanted to bring that up. Um, the timing for this is ideal and uh, it should be released um, about a week after we record it. So I think we got a lot of really cool topics to go through before diving into the background of the company funding. I know we have some listeners that are um, very new to cryptocurrency in general. Um, before we get to cryptocurrency insurance, I'm hoping for the audience you can just break down in really simplistic terms what cryptocurrency is for those who are unfamiliar.

Speaker A: Yeah, it's interesting, um, back when we started in 2017, um, know I had had, um, set up one of the very first insurance and blockchain and crypto sort of oriented conferences in North America. And um, we had about 150 people attending. Really quite interesting if you think about it. So, you know, five, six years ago, insurance executives, you know, delving into the world of blockchain and insurance and crypto assets. Um, and I asked the group, you know, how many of you, um, you know, own cryptocurrencies. And there was about five to 10 people out of the 150 that sort of raised their hands. Okay. And then, you know, since then, and actually about a month ago, I gave a very similar discussion, uh, at a panel and asked, uh, the same question. And more than half, probably two thirds, raised their hands. So it certainly was a much higher level of, I'd say, awareness and participation in cryptocurrencies. To answer your question, around what cryptocurrencies are, and I would certainly encourage people, there's a lot of cryptocurrency 101 type of, um, information and education material out there. This intention here is not to go too deep. What I certainly can say to you is it's really. And talking about cryptocurrencies, you do need to kind of think about it in the context of some of the underlying technologies like blockchain, decentralization, decentralized infrastructure. It is you know, a way to essentially, um, uh, create and have value, um, in a, for lack of a better word, a digital form, a digital currency. Now, for some of the purists out there, I recognize that I'm treating this with a bit of a broad brush. Um, however, when people think about Bitcoin or Ethereum, these are some of the larger cryptocurrencies out there. They're oftentimes viewed as just highly speculative, um, investments.

Speaker B: Right.

Speaker A: Yet I would say that the real power of Bitcoin, Ethereum, cryptocurrencies, and I would argue digital assets, it really goes back to, you know, what are they supporting? What type of, um, businesses can they support? What do they represent? And I would encourage people who are thinking about, you know, cryptocurrencies or blockchain and think about them together and to really understand that they are, in some cases, solving very specific problems to an industry. In some cases, they are solving a very basic issue of providing access or means to exchange value between people, no matter where you are in the world. And so, again, I'd encourage people, there's a lot of good educational material out there, um, go look at, to get the deep dive like the blockchain 101. I've given many of those. But given that this is really meant to be more of an insurance broker discussion, what I can tell you is that what we see quite often is, um, you know, retail brokers who have, um, let's say crypto oriented companies approaching them, looking for things like DNO or ENO coverages and then quickly, depending on their businesses, looking for things like, um, theft or loss insurance. And the very first challenge that comes up is, you know, this is an issue from an underwriting perspective as well, is just understanding the business, like what exactly does the company do? And from there, you know, this does tie back a little bit to your question on what are cryptocurrencies? You need to understand the risks, right, that the insurer is looking to have protected or protection for. And so for us, you know, that's really the starting point. And the challenge is that, you know, cryptocurrencies, the crypto, crypto asset industry, you know, while it's been around for, let's say more than a decade, you know, there really are not, there's not a lot of industry knowledge and experience out there. So if you're a retail broker who happens to understand a lot about crypto assets or crypto, the crypto industry, it's probably because you're interested yourself, right? You've been looking at it, you may own some cryptocurrencies, you've been, you know, uh, on trying to build up your own level of education. There isn't, you know, insurance, insurance industry level material out there. There is, there is some actually coming online. But the reason I highlight this is that it can be a real challenge if you're a retail broker and don't have a lot of depth in the crypto space to really to understand what, not only what the crypto company you're talking to is doing, let alone the risks. Um, and so our underwriting starts with understanding the underlying risk business itself. So if you're a retail broker dealing with a startup in the crypto space, you know, that's got some funding, get your hands on the investor material, right? Understand how they're describing their business, um, and how they've received their funding. And from there you can then start to, you know, engage firms, you know, like Everas. And we, we focus exclusively on institutions, we focus on underwriting. We can really help understand the needs of the insured, you know, obviously working closely with the broker. Um, and that just takes a lot of, in some cases, technical understanding and expertise that we bring to the table. So it really comes down to the business, the technology and then the, you know, the people and the processes around it.

Speaker B: There's no doubt that you guys are filling a huge market need. In my experience, um, almost every market that I'VE come across has excluded uh, cryptocurrency as a class in general.

Speaker A: Yeah, so I, yeah, I'm sorry to interrupt you. I was going to say that that's a very common experience. You know a lot of the, for the retail brokers in the audience, you may already know this but it is very difficult to obtain for example DNO coverages. Uh, if you're in operating in the crypto space. Very few options available. Um, you know we everas, you know we're alloyed cover holder, we have access to a plus paper. Um, that is our, you know our initial offering in the market is a crime or a theft product. And we, we will have some very exciting announcements next year, early next year to start addressing other needs of the market. But with so few options available, um, you know what we want to do is we want to help the retail brokers grow these portions of their business and help them understand and learn as well.

Speaker B: Raymond, tell me why and how you guys decided to start this company.

Speaker A: Yeah, I mentioned earlier our journey started back in 2017. Um, you know my co founder, um was leading up a blockchain team at one of the world's largest global custodians. Um, and they at the time were looking for insurance. Uh, and it was, there was very few options available. Um, you know for myself, um, I had an insurance background and it was well a technology background and was personally very interested in blockchain as its enabling technology. What you see sort of web three today, um, and given my insurance background and experience, you know we had gotten together, we met at a conference and so we quickly realized that while this asset class was growing very quickly with a lot of interest, um, the insurance market was almost untouched. And there are I think a lot of interesting reasons why, uh, some of which go back to just you know, go back five, six years ago in very little true um understanding of the technology and the, the operational needs um, as well as the businesses. And so capacity providers at the time still lack the in house knowledge to be comfortable to deploy more capacity. So there's really a case where demand, there's a big disconnect. Demand is certainly there and growing. Yet the capacity providers, even insurers as well as reinsurers are somewhat hesitant to deploy more capacity. Um, they're still waiting for the market to evolve. There is no historical data. Right. Or very little. Uh, we actually have been working on building a loss event database, over 1200 events right now. So we're trying to categorize events to really start to understand and Build that underwriting data required to support a good understanding of expected loss ratios, for example. Um, so a lot of this information is hard to find. It's not. You're not talking about auto or home. We have lots of, you know, hundreds of years of data. In some cases, um, it's just not there. So that's where experts like Evertas come to play, is because we are providing that specialization, we focus exclusively on crypto assets. In the crypto asset industry, um, you know, being one of the first insurers in the space, um, and uh, sort of crypto asset insurance companies in the space, we actually have done several things. For example, we have a Class 3A license in Bermuda. Because we know that there is a need for capacity in this space. We're looking to build ah, out that facility. So um, our journey started by recognizing that this is a new and growing industry and asset class. With it, you expect to see lots of infrastructure put in place around it like custodians, um, and insurance. And insurance, um, has really, it has been a long road to try and get the underwriting which we built to encourage capacity to come to market, um, to make an industry comfortable in addressing these risks.

Speaker B: It's super exciting. You guys are definitely pioneers in the space. I want to talk about the insureds and nail down exactly who they are, are. So if there's a broker that's listening to this and they have a potential client, uh, that could come your way, is it individuals or is it exchanges that would typically buy a policy from you guys?

Speaker A: Yeah, so, um, we focus on institutions. So think about custodians, exchanges, um, funds, corporate treasuries, family offices. Another way you can think about it is we do not focus on retail, um, directly, um, indirectly. We can address them by. We've built platform policies. So if you are a custodian and you want to offer a way to have your customers have access to insurance, you can do that through some of the vehicles we've built. But again we go through market as an mga, so we are working with the retail, retail brokers. So um, the focus we have as institutions. So think companies of the type I've mentioned.

Speaker B: Okay, can you throw out maybe some examples of um, the institutions or the exchanges that you guys might cover so people can get like a very clear idea.

Speaker A: Yeah. Uh, so I can't talk about specific insurance obviously and who we've underwritten. But just think about, you know, if you go, if you think about large, um, custodians or exchanges in the news, um, These are people that are, these are institutions that are like, are perceived as almost like banks. Right. Um, so you can, you know, custodians like ah, say Coinbase for example, right. They, they are Gemini. They allow people to uh, typically if you want to send fiat like US dollar, you can, you can convert that, you can exchange it to other cryptocurrencies and they will custody the private keys for you for those assets. Um, so they as a custodian have the care custody control, um, uh, of those assets. There are other infrastructure providers. Um, so some custodians and I won't go into too much technical detail, but some custodians or people go to market as custodians, they themselves may use third parties, uh, for all of the actual implementation of the custodian to have the actual care custody control that technically is outsourced to another provider. So they are like these. Think of them as um, infrastructure providers.

Speaker B: Okay.

Speaker A: Um, they all, they have a similar liability. Right. Again if the private keys are lost or stolen, um, that's an issue. Um, if you think about um, just funds, right? So if you're an investment fund, we've seen a massive increase in the amount of investment funds seeking to invest in crypto assets and they have similar issues that a uh, custodian would, which is, well because of fund and because of the way crypto assets and blockchain in general are uh, implemented, you can self custody, you can essentially uh, maintain your own care custody, control of assets. So for funds, if they're doing it themselves or if they're using a custodian or exchange, um, they have the same risks, which is. Okay, well what happens if um, there's a rogue internal employee for example? Um, you want an ability to uh, manage that risk. Corporate treasuries, think about large companies like some, like Tesla for example, made announcements about owning certain crypto assets. Those corporate treasuries have the very same issue right around what do we do in the event of a theft or loss of the crypto assets. And that does tie back to how they're custodying those assets. Family offices, um, you know, some larger family offices, say larger than $5 million typically um, are looking at investing in crypto assets. They have the very same issues around the custody of them, the crust, the custody of the assets and therefore, um, what type of protections or how do you want to manage the risk around theft or loss of those assets. So kind of recapping, you have custodians, you have exchanges, you have, you have investment funds, you have corporates or corporate treasuries, um, offices and then family offices. So all that's a relatively wide uh, set of potential insurance. And there can be companies today who um, you know, may own crypto assets and don't even realize it. They may have made an acquisition. Right. There may be a company in their portfolio that has crypto assets. And so how do they want to custody those assets again, self custody or work with an outside party. And then all the similar issues around the risk of after loss and how is that managed?

Speaker B: Okay, that's a really good breakdown of the, of the appetite and uh, the potential insurers that you guys are looking to write. I want to talk about the policies and um, I want to start off with what are the specific things that you guys are covering with within these cryptocurrency institutions?

Speaker A: Yeah, I want to answer that question, but I do want to come back to just, I wanted to highlight this gap of um, of capacity because I think while there are, there's a huge opportunity. What I wanted to stress is if you look at the size of this market, you know, call it roughly a trillion dollars plus or minus, you know, there's only a small percentage of that is available in capacity, like so less than 5 or 10 billion dollars of capacity. The moment you understand how little capacity is out there and how large this asset class is, it really highlights the challenge for uh, the retail broker because you not only have to understand this new asset class, you got to find the markets like Evertas to help solve the insurance that the insurance needs. Um, you asked about the actual policy.

Speaker B: Yep.

Speaker A: And uh, I'd say that's really at the heart of what we've been building. So what you find today, and this comes back to the state of the industry today, what you find is that especially in the area of um, crimes like theft or loss, what you find is that many of the policy forms that are being used are essentially repurposed crime forms where they've you know, try to, you know, modify language in a manner that can sort of address some of the crypto related risks. But they usually end up being, well we've seen cases where they are, let's say technically incorrect and I'll give you some examples as to why, or legally ambiguous and that we don't think that's the right answer in the industry. What, what we want to focus on is being very transparent and making it very clear what is or is not being insured.

Speaker B: Great.

Speaker A: That we think benefits the insured ultimately.

Speaker B: Oh yeah.

Speaker A: Because in a Situation where there is a claim, you look, it should be, it should be quite, you want a, a bright line. Just in the sense that, look, insurance are sort of two sides to an insurance contract. And yeah, there is a valid claim you want to pay down, right? You don't want to be spending years in litigation over it. And the way you do that is by essentially making sure the policy form is purpose built. And that's what we've done. We spent the first year, year and a half really investing the time in the very, um, unglamorous world of policy language. But it was really important because we built it from the ground up as a crypto focused policy. And that's really important because we're using that and you're going to see some of these newer products next year, um, as a foundation to build other products. So again, the policy form is building clarity. I mean we're defining a digital asset loss event. It's very clear what that means. Um, we're defining terms that at least to date have been used very loosely in this, you know, for the, you know, for people in the audience. Uh, you may have heard of terms or seen terms like hot, warm or cold storage that are being used or discussed in this, in discussions with an insured. Yet those aren't legally defined terms. Um, those aren't really terms of art that you can point to and say, look, well, everyone knows what hot storage means. Everyone knows what warm or cold, they don't. And so we actually, and we're doing much more, I would say in terms of education for retail brokers to make you more, um, give you this, the skills and the tools to be more effective in your discussion with the insureds. Because you know, at a very high level, you know, cold storage can be viewed as something offline like a USB drive. Hot storage can be viewed as something, I mean, I mean I'm speaking very generally as a computer connected to the Internet. Uh, warm storage, uh, introduces certain elements like um, um, HSMs that can sort of bridge this gap of being, uh, allowing greater or faster access to assets that might be uh, online. But the point is, is that the terms need to be defined and we've done that. They're actually defined in our policy and we put them on our website. We've said, here is how we think about hot, warm and storage. Cold, hot, warm and cold storage and how they differ. And historically, just so your audience knows, I mean the speech market in London, um, for many years has really served an important role in supporting cold storage. It was Very similar to vaulting. Um, and the speech market has been evolving as well to address other types, uh, of storage needs. But it's important to have some of that context as to where or how at least different type of storage types, uh, risks were being managed and addressed into the insurance market. There's much more prevalence of warm storage today. Um, and there's a lot of variety in how warm storage can be implemented, which we think means you need to have an underwriter who understands how a custody system is being implemented to make sure the risks that want to be addressed are being addressed. So, um, coming back to your question around what's being covered, I mean, or the policy itself, currently it's theft or loss of digital assets. That's our focus. That builds a foundation for us to introduce other products that you'll be seeing later next year. And it's also, we think the hardest one to underwrite. So we've spent years underwriting in this space. Uh, we have over 20 categories of risks that we look at. Um, we really, in the, in the risks. I mentioned some of them before. They, yes, they touch on technology which you would expect to see. Um, but we also look at the business, we look at the operations. All those together are really important. And the power of what we built has allowed us to bring risk solutions in cases where the insured and the retail broker did not think there was a solution. I'll give you an example. Um, we had an insured and the retail broker was discussing um, with us the, the technical implementation. And the view was that it was hot, a hot storage type of um, solution that they had built. And again these terms are not defined. You really have to get under the covers to understand what they are. From our perspective, it was more of a warm storage implementation. Now these aren't just words. The semantics actually are important. Hot storage, which, if you think about know, Internet, um, Internet connected to the Internet, could potentially be at higher risk. Yep, those raise lots of questions. Um, from an underwriting perspective, it's perceived as being. Perceived as being of higher risk, um, and the rates may reflect that. Whereas warm storage, um, can be perceived as, I'm using air quotes, sort of less risky. But my point is that there are impacts in terms of the underwriting and the, and the rating. And we were able to help them understand that this is in fact a warm implementation and therefore, um, our policy and together with um, you know, our carrier partner, we felt that it could be addressed. So this is where having a good policy form and strong underwriting can actually Bring solutions to the table that may not have been there originally.

Speaker B: Okay, what do you think the average premium size will be and what is the typical limit? So, uh,

Speaker A: it's probably a longer discussion, I can tell you that today. Um, I can answer the question this way. If you're looking for um, a theft or loss policy, let's say in the several hundred million dollar range, which would be a larger, that would be a larger policy in this space, um, let's say something in the half a billion dollar range, that would be a very large policy.

Speaker B: You're talking limits.

Speaker A: What's that?

Speaker B: You're talking limits.

Speaker A: Yeah, limits. Um, that would be a very difficult policy to place. Uh, you would have, it's a very large tower, uh, to get all the capacity lined up. Um, there's a handful of those. The, as you start looking at lower limits, like say, let's say, um, $100 million or $50 million or 5, $10 million, what we end up seeing is typically startups or you know, newer crypto asset firms are kind of in the five to $10 million limit range, I would say. Um, and then what they are doing is they're really being, they're poised for growth. And so while those initial limits might be quite, quite low from an underwriting perspective, we understand what their strategy is, what they're trying to do. So we are underwriting with an anticipation that there's going to be increasing limits. Uh, one thing I probably should focus on or at least bring up because um, comes up a lot in our discussions which is, and again it's an area where the, the industry will need to innovate is the limits being in Fiat or US dollar, whereas the actual assets might be in the cryptocurrency like in a Bitcoin or Ethereum. So today limits are in fiat, so they're in dollar.

Speaker B: Okay.

Speaker A: You know, there are, there is a need for solutions that are, uh, that provide for limit in the cryptocurrency.

Speaker B: Interesting.

Speaker A: Yeah, premium in the cryptocurrency claims paid out in the cryptocurrency. And the reason for that is to eliminate the FX issues that come up. Uh, so there are some solutions emerging. Um, certainly stay tuned to the space, into this space, um, early next year as well, or next year. Um, but that we think is where the industry needs to go because the FX issue, it becomes an issue because you know, your need for your limit could be changing daily depending on how much activity there is in the market and what you're trying to do. So I just wanted to mention that I'm talking limits, I'm talking about, you know, fiat. Right.

Speaker B: Can you go a little bit deeper into the FX issues?

Speaker A: Yeah. So, um, it's, it's a case where the assets being custodied are like Bitcoin or Ethereum, yet the products of the insurance policies, the limits are in dollars. So you could see a case where if you have a limit of say $50 million, um, yet there is a significant price movement of the underlying asset, even intraday, you may have insufficient limit.

Speaker B: Okay, that makes a lot of sense.

Speaker A: Similarly. Similarly, if there's movement down, you may have too much.

Speaker B: Too much.

Speaker A: Yeah. So this is the issue I mentioned and the way to solve that is to have insurance products that are crypto denominated.

Speaker B: M. Okay, yeah, that is super, super interesting. Um, okay, so just, I mean ballpark, if you had to give me a premium if I was going to buy $1 million limit, do you have an idea of what an uh, insured might pay for that?

Speaker A: Yeah. So I think the rough guidelines we give, and some of this is available publicly is um, and with the biggest asterisk being dependent on the underwriting, this is a case where you successfully gone through underwriting, um, you understand the risk, you typically in the 2 to 3% range. So um, you know, 20 or 30,000, you know, per million.

Speaker B: Okay.

Speaker A: Is the, you know, a starting point?

Speaker B: Of course, of course.

Speaker A: Um, and you know, pricing typically moves up there depending on, you know, typically credits or debits or underwriting or the rating plan.

Speaker B: Okay. Okay, gotcha. Well, that's, that's really interesting. I appreciate you breaking down the insureds, um, how the policies work and what your, what you're looking to cover and how specific you're looking to get there along with uh, the premiums and the limits. And those FX issues are super unique as well. Um, very recently the third largest crypto exchange, ftx, uh, went through, or currently going through bankruptcy. I'm really interested in your thoughts on this because you're kind of living in this world and you're analyzing these institutions. For those that have not heard about this story, I'm hoping you can break down what happened and give us your thoughts.

Speaker A: Yeah, I'm um, not going to be the best resource to describe, um, what happened. Um, there's a lot of publicly available information, uh, about that. I wouldn't disappoint people to those things. Uh, am Best actually had a very interesting write up last week. Uh, for people in the audience want to look it up. They, they said that you know, while um, while FTX wasn't an insurance company they really highlighted several deficiencies um, that were sort of lessons to be learned that insurers should take notice of. Um, publicly. Um, you can again using public information you can look at um, you know, lack of governance I think am best highlighted, um, difficult not knowing all the facts when looking at um, um what the new CEO has described, um in terms of lack of internal controls, inexperienced management team. These are all things that would be red flags for even a smaller crypto exchange as well if you're thinking about just DNO coverage. Um, I think that what it, you know, if I take a step back and don't really focus on NFTX and just ask, you know, what this means for insurance and what it means for the crypto asset industry. It highlights a real need for professionalism and the role that insurance can play which is we would argue much more responsive and dynamic than perhaps what a regulator could put in place. Um, this space moves daily and if you think about what an underwriter can do, you're providing a third party view into an entity, an objective view and you're touching on uh, really important areas of risk. And, and what's important here is that that underwriter, insurer has a financial incentive to get it right. And that's where we see the role of insurance as one that's played throughout time is being able to bring a level of professionalism and accountability uh, to new or emerging industries. There have been many times where we've gone through underwriting and um, through that underwriting highlighted very important issues in terms of the operations or the technology that need to be addressed before insurance can even be considered. So we're, we're, it's a, it is a way to bring some notion of standards to an industry that today is unregulated and does not have a lot of standards in place. On the standards front we're also doing a lot of things uh, again look, you'll see some more announcements from, from us next year in, in the, in the similar area of education and trying to put some stakes on the ground around how, what are you know, are there proven practices out there? M, uh that we think it's important to communicate broadly speaking to industry. So um, you know, FTXs, you know, would understand you, you so you as a customer would understand or have a much great, much greater degree of understanding as to how your um, custodian is operating. Um, and I think that insurance, we've dealt with institutions who said look, we don't we view having insurance as the most efficient way to communicate to our customers that we're well run. So again it's a third party objective outside you coming in and providing um, an assessment of operations, technology and the business.

Speaker B: Okay, so in, in the scenario that went down with ftx obviously a lot of the details are still coming out. It sounds like there could have been some fraud, there could have been some theft. Is there anything that happened in that situation that would apply to what you guys are looking to cover with your crypto insurance policy? Is there any overlap there?

Speaker A: Um, yeah, I mean again those are all allegations obviously. Um, any you know, anytime you know, DNO policies, you know, would look at some of the management issues that you touched on. Um, um, anytime you have fraud or criminal activity that can sort of um, that has a big impact on the insurance policy obviously. Um, and it also has a big impact on the recourse for the customers and that's ultimately you don't want to lose sight of the fact right. That there are, you know there are customers um, who want to understand what happened to their, their assets.

Speaker B: Oh seriously?

Speaker A: Yeah. And so again not knowing the specifics of ftex, I wouldn't want to uh, to guess or to um, you know to put something out there that again having not don't knowing all the facts. Um, but what I would say is that the role insurance you know, can play and should play going forward is to provide that outside view in of um, like you know for example looking at the management team asking questions around, okay, what are, what is the committee structures? How often are they meeting? Really just basic questions to get at. Is the company well run? Right. Is the management team experienced, you know the fact that um, it was based in the Bahamas. I mean you could ask yourself is that the right jurisdiction you want to be operating in? There's other reasons as to why they chose the Bahamas and not the U.S. and there's other policy issues there. We actually, we replied to um, the SEC's request for comment last year around broker dealers in the digital asset space and we provided you know, some very specific recommendations. Um, and one of which was including insurance.

Speaker B: Okay. Okay. Well Raymond, is your guys plan for the company to continue to develop products specifically for the crypto currency space. So for example like a DNO product for a crypto exchange.

Speaker A: Yeah. So um, the, the crime theft product we built is a foundation, right? Yeah. Plus paper Lloyd's, Lloyd's cover holder going forward. I mean we see the other areas um, of risk as being how we Want to expand our product set going forward. Uh, we're going to have some announcements early next year. I won't go into specifics right now, but a lot of the coverage is. So we think being known globally as, you know, the leading underwriter in the space puts us in a very unique position. You know, we have the underwriting team, we have a claims handling team, um, and we have a set of crypto natives, people who've actually built custody systems in this space. And we've solved what we think is the hardest piece, which is underwriting the theft loss of the custody system itself. And from there looking at other coverages would be a natural extension for us. And yeah, we're looking at all of those.

Speaker B: Wow, that's really cool. Um, all right, well, um, just a couple more questions for you here, but I read that you estimate less than 3% of digital assets held by custodians are insured. Less than 3% are insured. Seems low. Is there, is that a, uh, disparity, a problem of supply or of demand?

Speaker A: Yeah, it's definitely supply. Okay. Uh, it's definitely supply. And you know, well, the market is, is also, um, there's a disconnect in the market. And that's really, to me a role that retail brokers, um, can play. It's, it's one of, there are companies operating out there who think they cannot get insurance and that's, that's not the case. Right. So the retail broker can help educate those insurance to make them aware of crime, theft policy or crime policies, dno, EO policies. Um, you obviously want to solve the capacity problem or the supply, supply problem. But there are solutions out there. Um, again those are the things we're trying to help solve as well. But the reason that the percentages are so low is it does fundamentally come back to supply or capacity. And then if you think about why is that the case, there's a couple of reasons. It's one, it's a new industry, not a lot of actuarial data to rely, uh, on, not a lot of in house expertise. Um, if you think about all the people going into the crypto asset industry, you know what I've said many times is that most of those people probably would never consider career in insurance, let alone underwriting. And so you can begin to see a bit of the problem that the uh, insurers and reinsurers have just on the resource side to understand these risks. And that's again, come back to why there's a supply, it's a capacity or A supply problem. Yep.

Speaker B: And that means that it's ripe for opportunity. So, I mean, if there is.

Speaker A: And that's. Yeah, I would say that's why we've been very excited about raising the current round, having the amazing set of investors we have who all really believe that, you know, this is a massive opportunity to build a really needed insurance foundation for crypto assets going forward.

Speaker B: Speaking of that round, do you guys have specific plans for that 14 mil, what you guys are going to do with it?

Speaker A: Yeah, no. Um, well, several things. We're continuing to build out our underwriting team. Um, we're developing, leading the market in terms of standards and, um, data and then building out other proprietary, uh, enabling technologies. And so a lot of these we'll be seeing some more announcements from us coming out next year. But, uh, the funding was put in place to basically to continue to expand our team and really go after this massive opportunity.

Speaker B: Cool. And where do you guys look for crypto insurance underwriters? Are you looking in the crypto world first and foremost? Are you looking in the insurance world to kind of teach folks that are newer to crypto how to underwrite it or how do you. How are you guys approaching that issue? Because it's obviously such a, um, new topic that a lot of people are not well versed in now.

Speaker A: It's a, it's a great question and it's off. Also, the case where perhaps someone is really deep in crypto, doesn't even realize there is a career in insurance or underwriting that may really suit their skills and background and interests. To answer your question, it's all the above. Okay. Uh, you know, because we're crypto natives, uh, and have, are extremely well connected and entrenched almost all the companies in the space. Um, we know a lot of the people, technical people, so that's certainly one area we look at. But insurance is unique. Uh, and so when we're looking for underwriters and we've had a bit of a mix, we've had people who've had, uh, careers in, let's say, cyber, who have a technical background, who also understand crypto, maybe as a hobbyist or crypto enthusiast. So there isn't as steep of a learning curve. Uh, so I would say it's certainly people who are familiar with more of the technically oriented insurance areas or products. That's extremely helpful. Um, as we build out other products, obviously things like Dino or Tech Eno, those type, that type of expertise also becomes important. But totally, um, we're looking, we're looking Both in the crypto world and the insurance world for underwriting to build out our underwriting team.

Speaker B: Okay.

Speaker A: And, and I would say our security team in general. Um, because our security team sort of spans different areas of our company and it's also a strong, um, it's a strong addition to our bench.

Speaker B: If I'm a retail broker and I'm working with some of the businesses or the entities that you mentioned that fall within your appetite, how would I get access to you? Should I go to your website and look to get appointed or is there a process that you think a broker should take to look to um, get one of your policies to their insurance?

Speaker A: Yeah, the simplest thing is go to our website, evertas.com, reach out to us. We'll certainly get in touch with you and figure out how to work together.

Speaker B: And is there a process that would make the underwriting go smoother? Like if I'm a broker, should I have a specific app that I get completed or should I be aware of um, any specific details about the crypto exchange or the custodian that I'm looking at?

Speaker A: Yeah, great question. So we obviously have an application, um, that we, that we start with, um, and we actually can and ask additional or supplemental information because we want to be efficient with the insured's time. It's really important to us and I'm sure the retail brokers would appreciate that as well.

Speaker B: Of course.

Speaker A: Um, and the most important thing I would stress is as I mentioned, I think in the onset of the call, which is um, understanding the business model, you know, just make sure you understand the business model of the insured. Um, and then you know, as we're going through the underwriting process, it's, it's, it's something as simple as making sure it's the right person contributing to the underwriting. So it's you know, someone from the technical area of the company, someone who's familiar with the business operations of the company. Giving this application to an office manager is typically not the right person to start with because all, ah, there's a lot of follow, uh up questions and it becomes very obvious that that person is simply going to be reaching out to other people to get the information needed and it's just not very efficient. Yeah, so it's really about, you know, making sure the right people are there and then like as you would um, you know, for any other type of risk is make sure you understand the financial aspects of the company. Um, I mentioned getting the, if it's a startup, understanding the pitch material that was sent out, um, and, uh, you know, engaging us early on because it can sometimes be a very quick phone call where we might be able to help steer the retail broker in the right direction in terms of is this something that's in our appetite or not? Um, yeah.

Speaker B: Well, that makes sense. There's that those are all very reasonable requests. So I, I appreciate you breaking that down and Raymond, I appreciate you coming on. I, I glad we walked through all those steps. And I, I think there could be a, uh, pretty good contingent of brokers out there that approach you after this conversation. We always end with five rapid fire questions that are combination, uh, of both personal and professional. So if you're ready for those, I will dive in.

Speaker A: Sure. I haven't seen them, so let's see what they are.

Speaker B: Okay, first question. I think this is, uh, I'm really interested in your response here. What is your favorite type of cryptocurrency?

Speaker A: Uh, this is going to be a bit of a cop out, but I don't have one. I mean, we look at, you know, we look at, we're, we're agnostic, to be honest with you.

Speaker B: Okay.

Speaker A: So, um, we. Personally, I don't have one. Nor professionally. Do I have one.

Speaker B: Yeah.

Speaker A: So sorry if I disappoint you with my response.

Speaker B: It's all good. Well, we'll see what you think of the next question here, because I, I personally have been asked this question. I don't have a good response for it. Um, is there a specific type of cryptocurrency that you'd recommend investing in right now?

Speaker A: No, I'm not an investment advisor. Uh, you know, I get, that's why I'm half joke. You know, I get that question a lot when I'm, I'm sure I'm at holiday parties and people are saying, you know, what do you think of this? Yeah, you know what? Um, I'm not an investment professional. Uh, and I would say that the fact that you're asking me means you probably should do more homework. There are a lot. There are a lot. Well, in all honesty, there are a lot of cryptocurrencies, uh, available in the market. If you're going to invest in one of them, whether it's technically or from like their, uh, value proposition is do your homework. That's what I'll tell you. Do your homework. Understand that. At a more serious note, understand the team. There is a team behind it. Understand that team really well. Um, that's incredibly important because unfortunately you see things like rug pulls that are done. And, you know, investors were not very happy at the end of the day.

Speaker B: Okay, the next question.

Speaker A: I hope I can answer the next three.

Speaker B: I know we're over two, Raymond. We're over two. It's all right. This next one, this next one's a layup. So we're talking before we, uh, start recording. And you're in Chicago right now. Do you have a favorite restaurant in Chicago?

Speaker A: Oh, um, I do. I'm trying to think. Um, I was there recently. The name is escaping me.

Speaker B: Um, do you know what type of food it was?

Speaker A: It was Pan Asian. Perhaps in the back. And look in the background here. The name. I should know the name. I apologize for that. But that, that question I can't answer you. I just don't remember the name.

Speaker B: Uh, all right, all right, sorry.

Speaker A: We're. We're actually. I'll give you a bit of a cop out answer, okay? Because it's a place where, um, if you're in Chicago, okay, I was there recently. I had a great time. So it's more a combination of, uh, more of, like the, um. Especially if it was out, if it's outside in Chicago where it's really cold a lot, unfortunately. Um, uh, it's called Punchbowl Social. So this is not a place where you go for the food. It's more of the ambiance and the, uh, a lot of just, uh, uh, you know, for. For families or for adults, they have like, just a great indoor environment. I would say that to me.

Speaker B: Okay.

Speaker A: Sometimes. Okay, so it's not. Yeah, it's kind of a fun place to go. All right, fun category.

Speaker B: Punchbowl Social. Noted.

Speaker A: Oh, actually one restaurant I went to

Speaker B: recently, the Ambassador west, that was the Pan Asian one.

Speaker A: Um, no, that's not. That's more of like, American. Okay, so.

Speaker B: All right, all right, well, we got a couple good options.

Speaker A: Uh, okay.

Speaker B: For the next Chicago trip. So when I was starting Evolve mga, there's just so many moments, um, I look back on, uh, fondly and, um, it's just. There's so much, so much learning and so much bonding and, um, so much growth that goes into, um, founding a company. When you look back on Evertas, is there a favorite moment that you had when starting the company? When you look back on, you know, when you're putting everything together, is there a moment that you look back on that? Like, that was just one of my favorite moments in building the company.

Speaker A: You know, it probably moments plural. And I can tell you it comes, um, two different experiences. I would say because the need uh, is so massive. Um, it's when you're talking to an insured and they, they're expressing to you the utter frustration they have in not having insurance solutions and talking to a firm that understands their business, understands their risk, understands the technology. And you have someone saying, you know, I can't tell you how, you know, uh, how good it feels to be on a call with someone who understands the space so well and can help us navigate, you know, this insurance space that, that's just very, that's just a great feeling, right, because you're helping yourself a real need. Um, and the other really uh, has I would say come from just some of our um, investor discussions where similarly they, they see the need, they, they see the opportunity. The opportunity and they're just, they're as excited as we are to start solving m, to start solving the, this, this massive need for an insurance platform in crypto. So um, those are kind of two general types of moments I would say

Speaker B: that I find right that validation is real and I'm not surprised that you guys are uh, Lloyd's in London cover holder, just because they're uh, the OGs in the space that have been writing the riskiest stuff from the beginning. So I think that's really cool and I think that validation is something that is truly special and it makes, especially when you're in a brand new space, a lot of people don't take you seriously until you know, things start becoming more and more real and things catch on and then, then you know, you look like the smartest guy in the room. So final question here for you Raymond. What do you think Evertas will look like at the end of 2023?

Speaker A: Oh, great question because we've just been doing a lot of our strategy work for the next couple of years, um, 2023, um, a lot more products, um, and we've touched on some of them. So really fleshing out a full set of insurance offerings for people in the crypto space, that's number one. Uh, so it's solving market, solving the market demand. Second, uh, is our team so continuing to build out the strong team we have uh, with some additional key hires. So it's continuing to, in our infrastructure and our people. Third, uh, we are bringing technology to the forefront. So we're going to be rolling out uh, an updated portal which we think is really going to streamline the underwriting application process. Um, those are kind of all you know, retail, um, broker as well as insured facing, um, to kind of solve the uh, some of the inefficiencies in the underwriting space. So, yeah, next year is going to be a great year for us from just building out our infrastructure, our products and services, and our team.

Speaker B: Okay. All very exciting stuff. Well, Raymond, I'm really glad that we met, we chatted. Um, I'm very interested in everything that you guys are doing. I think that, uh, there's a lot of similarities between what you're doing and, um, what we've been doing in the cyber insurance space and dealing with a lot of the same hurdles, the same educational elements. Um, so it's a, it's a unique space to be, and I can totally empathize with a lot of what you're going through, and I, um, look forward to staying connected. If you're in the Dallas area, you have to come through and, and say hi, Would love to grab, uh, a drink, grab some food. Uh, but with that said, Raymond, we can wrap this up right here.

Speaker A: Great. Pat, thank you so much. And thank the audience as well for their time.

Speaker B: Of course. I'll talk to you soon.

Speaker A: Thank you.

Speaker B: Bye. Please download, subscribe and leave a review on whatever platform you are listening on. And feel free to reach out to me@pat evolvedbrokerpodcast.com with any comments or suggestions for the podcast. Today's episode is sponsored by First Insurance Funding. First is the leading premium finance company in insurance and is known throughout the industry for their personalized service and, quote, flexibility. If you're tired of sending, quote, requests for smaller premiums to multiple companies, not leaving enough time to negotiate larger opportunities, then choose first as your primary financing source and experience the first difference today.