Nayms: a Bermudian twist on disruption

“We’ve never had as much interest in digital asset risk transfer as we are seeing this year,” says Benjamin Peach, associate director and digital assets specialist for the global broking centre at Aon.

According to Peach, Aon is seeing a new wave of financial institutions and large fintechs increasingly reach out to discuss attaining insurance for their upcoming cryptocurrency offerings. At the same time, a variety of grassroots decentralised finance (DeFi) companies are looking to insure against failure of protocols and smart contracts, he says.

With the digital asset space soaring to a $1 trillion value, it came as no surprise that Aon, one of the world’s biggest brokers, had partnered with a forward-thinking insurtech to launch the first blockchain-enabled placement of insurance with regulated, professional insurance entities.

In March 2021 Aon teamed up with Nayms, an insurtech platform that operates as part of the Bermuda Monetary Authority’s (BMA) regulatory sandbox, to help clients insure cryptocurrency risk.

According to Peach, Aon launched the project to consider new ways to service the “ever-growing demand of complex digital assets, and their nominated risks”.

“We have seen that insurers and some managing general agents that led crypto risks pre-pandemic have now discontinued their support for digital asset risk placements,” adds Peach. However, he says, the overall market cap of the sector has surpassed $1 trillion with many traditional financial institutions adopting blockchain technology and crypto assets.

“It seemed logical to look to those institutions adopting blockchain technology to be capital providers for the emerging risks of a maturing crypto sector,” adds Peach.

Bridging capital and risk

The idea of marrying blockchain and insurance is the origin story behind Nayms. Chief executive officer Dan Roberts had undertaken research for Insurtech Gateway, a London-based incubator on the use of blockchain in insurance. He quickly realised that the available assets in the digital asset space didn’t match up to the liabilities and there was little means for risk transfer.

In early 2019, the idea of Nayms was born. Roberts, in collaboration with chief technology officer Theodore Georgas, launched the business, allowing crypto-holders to use smart contracts to collateralise cryptocurrency risk with matching crypto assets. This brings insurance with no foreign exchange risk to a space that is 96 percent uninsured.

“We need diversity, not just on the risk side, but on the capital side. Our solution allows cover to scale for the space,” adds Roberts. “We’re here to bridge the gap between capital and risk, in which capital matches risk or assets match liabilities.”

Aside from the alignment of expertise and skills, Roberts’ decision to work with Aon partly stems from his outlook on the broking market.

He sees the biggest brokers and those at the bottom of the chain (who offer bespoke solutions) as the key drivers of innovation, but believes that the middle-market brokers are not progressive and innovative players.

“Brokers drive the market, so it’s important we have good relationships with the top and bottom levels,” he says.

An open market

Via Nayms, Aon will conduct a first pilot with Teller Finance, a decentralised lending protocol. Bermudian specialist insurer Relm Insurance will underwrite the contract.

Initially, Aon will focus on tech errors and admissions and cyber risks throughout the infancy of this new facility, catering to the vast growth of the DeFi community.

The broker is on track to place its first risk on the Nayms platform later this year, with the project receiving overwhelming support both internally and externally, says Peach.

“This kind of smart contract cover is not relevant just for our pilot partner, it’s relevant for the entire industry,” adds Roberts. Following the successful completion of Aon’s initial risk transfer placement, Nayms aims to become a viable open market for a variety of differing crypto risks.

“With more accessible capital for underwriting such risks, and the ability for crypto-based companies to purchase insurance without having to convert their balance sheets into fiat, we expect insurance to become more accessible and efficient as we align ourselves with the sector,” Peach explains.

Moreover, he says, broking insurance contracts and processing claims will all be expedited through the Ethereum blockchain and use of smart contracts.

Nayms has its own milestones to hit. Before its series A, planned for 2023, the insurtech wants to launch its own network token—Naym—and an insurance specific fund (to allocate capital into Nayms’ programmes), and to grow its team.

Its network token, for which $6 million has already been raised, will act as an asset that can be held by a community of insurance participants, including asset managers, brokers, insureds and claims administrators.

“We want participants to share in the growing value of the network,” explains Roberts. “Currently, a few select individuals benefit from the growth of startups (crypto investors) but with this token, we can allow a whole community of insurance players to benefit.”

Bermudian benefits

There’s an unsurprising Bermuda twist to this first-of-its-kind pilot, with Nayms regulated in Bermuda and a Bermudian insurer in the mix.

Bermuda’s blend of a good digital asset framework and its status as a global hub for insurance was what first attracted Nayms to the Island.

“The Island has taken a very proactive approach in starting to create frameworks for digital assets, not just on the business front but also on the insurance front,” says Roberts.

He adds that Bermuda’s position at the forefront of the insurance-linked securities (ILS) market was also a factor in choosing to operate from the Island. Nayms plans soon to apply its ‘smart insurance contracts’ to the ILS market.

"Bermuda already has an excellent reputation and is widely regarded as the leading jurisdiction for ILS funds, which has been bolstered by the BMA’s interest in insurtechs and the creation of an insurtech sandbox and innovation hub in 2018,” adds Peach.

The Aon executive is cautiously optimistic—he notes that while the BMA has made significant moves in recent years to position itself as a leader in the sector, “it has yet to be seen whether it can become a global capital for digital assets as it is very much the beginning of this tide”.

To take the metaphor further, while the industry and the Island may be only beginning to wade in the shallows of the digital asset space, the time to dive in and take advantage of the opportunities on offer is nigh.