How YAS MicroInsurance puts a price on non-fungible tokens

INSURTECH: NFT INSURANCE How YAS MicroInsurance puts a price on non-fungible tokens

The insurtech firm is one of the first in the industry to insure NFTs.

YAS pioneered NFTY, an NFT insurance that protects digital assets from capital loss (Photo from YAS.com.hk)

Insurtech firm YAS MicroInsurance has done what many thought was impossible: putting a price on NFTs or nonfungible tokens—something a person cannot even get hold of.

As one of the first insurtechs to give NFT insurance in 2021, Andy Ann, co-founder and CEO of YAS MicroInsurance revealed to Insurance Asia that pricing for NFT can be derived in a few ways, such as past transaction values.

“First of all, NFT is a tangible asset, it is a smart contract, and we are insuring the smart contract on both theft and loss coverage. The pricing principle is similar to collectable insurance, which is priced in terms of premium and coverage. The premium pricing is based on risk levels calculations, and the coverage amounts up to x% of the asset is also standard practice. We target to lower

Andy Ann

NFTs are the same as classic cars, therefore they needed an insurance solution

the premium when we scale up to a specific mass volume in the long run,” Andy said.

In the An Emerging Sector: NFT Insurance article by Istanbul-based Gokce Attorney Partnership, nonfungible tokens are described as “blockchain-based cryptographic assets with unique identification codes and metadata that distinguish them from one another.”

These are connected to each other through software codes in the form of what they call ‘smart contracts’. Embedded in these smart contracts are the terms and conditions to transfer NFTs. And of course, just like what Andy said, NFTs can represent both physical and digital items from works of art, real estate, music, or videos. The data processed on the field called “metadata”, determines what the NFT represents.

According to Andy, all the NFTs that they in YAS MicroInsurance have insured so far are on average 2-5 ethereum (ETH) with the bigger sizes ranging from 12-22 ETH.

“As it’s a very new product, we have started to compute premiums at 20% of the NFT price and cover 90% of the purchasing price,” Andy added.

Andy explained that the NFT market is currently growing at an accelerating rate. In 2020, the market was worth around $350m which ballooned to around a staggering $24b at the end of 2021.

According to Andy, the initial idea of launching an insurance product for NFTs came from their partnership with several musicians, artists, exhibitions, and galleries. As the rapid growth in asset value of NFT grew, YAS believed that NFTs are the same as classic cars, therefore they needed an insurance solution.

With that, YAS pioneered NFTY, a non-fungible token insurance that protects these digital assets from capital loss such as theft or malicious attacks on digital wallets and the digital marketplace.

Unlike current insurance products that protect physical assets, YAS dedicated its policies to “digital collectables only” that are uniquely registered on the blockchain. As all the NFT data is stored on a public blockchain representing digital property rights, YAS’s contract insurance policies define the NFT values and fully insure at their market value.

Need for protection

Andy explained that this is the perfect time to launch this product because as the market for NFTs grows, so do attacks and thefts.

“We have seen a handful of hacks such as the Banksy scam with fake banksy NFT was listed on Open Sea and sold for $350,000; hacks on Nifty Gateway; Evolved Apes; Bored Monkey Yacht Club phishing scam stole $2.2m; and most recently we

As the market for NFTs grows, so do attacks and thefts

With NFTY, 90% of the purchase price of the NFT is covered (Photo from YAS.com.hk)

have seen Monkey Kingdom also had a phishing link that over $1.3m worth of cryptocurrencies were stolen,” Andy explained.

In an interview in January, Adam Morris, co-founder of NFT Club, an NFT educational site said there has been an increase NFT scams, like replicas and fake assets being sold. These scammers would often impersonate support staff of legit crypto marketplaces or wallets to fool people into revealing sensitive information regarding their NFTs.

But how can something created digitally and filled with so many safeguards have such a high risk? It’s because when an NFT is created it has both a public and private key. The blockchain ledger is accessed by the public key and the private key serves as the proof of ownership. Insurance is something an NFT owner will be glad to have in case they lost their private key through fraud-related methods and to protect themselves from those selling fake and fabricated digital assets made to look like originals.

With NFTY, 90% of the purchase price of the NFT is covered. However, theft coverage can only be activated if it is reported to local authorities within 24 hours of its theft or if the insured item is not stored in a secure location with at least two-factor authentication.

NFTY also covers and pays administrative costs directly to the NFT minting platforms that offer such services for accidental loss. However, in case of disputes, the insured must deal with the platform directly. Coverage for the loss will not be paid if it is not reported to the insurer within seven days of loss in order to activate the insurance policy.

In order to activate the insurance policy, YAS will need to verify the policyholder and its wallet address. YAS’s KYC process includes the policy holder’s ID, email, and wallet address.

Threats and future outlook

Some countries still have a negative stance on cryptocurrencies. Singapore, for example, recently discouraged and warned cryptocurrency service providers not to promote their services to the public as “highly risky and not suitable for the general public.”

Could this have a domino effect on NFTs?

“As digital assets represent an increasingly large percentage of all investment portfolios over time, the need for digital asset insurance and risk management, such as for NFTs, will only increase as well. We don’t see NFT as a form of currency, rather, we see it as an asset, similar to a watch, a classic car, or a piece of physical artwork,” Andy explained.

Looking to the future, Andy believes that the NFT market would grow a hundred fold in the next few years representing the beginning for the insurance business of the market as artists, photographers, gamers, musicians, collectors, brands, and all kinds of curators come together.

“We have overwhelming requests from all kinds of businesses calling us including marketplaces, platform owners, hot and cold wallets, exchanges, custodian, payment gateways and brands. All these companies will need to protect their clients in NFT investments, and protect themselves from the volatility of the crypto currency and the risk of thefts and attacks on NFT wallets,” Andy explained.

For the moment, Andy sees NFTs eventually taking over the art industry because of its underlying blockchain technology.

“Without a centralised team or even us as a centralised team to validate art and artists, scammers are likely to flood the market. So NFT insurance can definitely help to prevent scammers from stealing art and money. I think 2022 will be a hot market trend for NFT insurance,” Andy added.

Companies must protect their clients from the volatility of cryptocurrency and the risk of thefts and attacks on NFT wallets