A second insurance product that is designed to cover investors against the risk of losing money in hedge fund fraud causes has launched today, according to the Financial Times.

The product, offered by Integro, a New York insurance broker, and Amber Partners, a risk rating agency for the industry, aims to capitalise on investors’ fears of losing money to fraudsters.

The first such product, launched in January by London start-up Protean, already covers $10 billion of assets and Protean says it has another $20 billion to $30 billion of business in the pipeline.

Integro covers only funds that have assets frozen by regulators, while Protean pay-outs can be triggered by other regulatory or legal action or referred to independent arbitration.

The problem for the insurance industry is a danger that investors who buy cover do not then carry out the expensive due diligence that most at present perform in to detect weak risk controls or potential fraudsters.

Investors might also choose to insure only funds that they fear might steal their money, making the risk to insurers far higher than simple fraud statistics on the $2,000 billion-plus industry suggest.

Both Integro and Protean try to avoid these risks. Integro uses Amber to investigate each fund before agreeing insurance while Protean demands that clients have sufficient due diligence processes in place.