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Fintech Insurance Trends for 2023

Fintech companies, including Saas companies, are well-known for innovating in an industry that is slow to change. But innovation in a traditional sector like finance doesn’t come without risks. As a fintech company, you need to think ahead to protect your business and customers from risks like cybersecurity threats, management liability litigation, and economic insecurity. Let’s review past, current, and upcoming fintech insurance trends to provide insights into structuring risk management for successful fintech companies.

Understanding the Fintech Landscape

The fintech industry has grown exponentially over the last decade — and even within the previous five years. According to Deloitte, the fintech industry is worth roughly $180 billion in 2023 and is expected to reach $188 billion by next year. Valuation alone isn’t the only growth driver in the industry. Currently, there are nearly 30,000 fintech startups worldwide. In 2019, this number was only around 12,000..

Insurance retention strategies become crucial in this landscape, as fintech companies seek to manage their exposure to various risks. This involves understanding which risks the company is comfortable retaining and which should be transferred through insurance policies. Having a comprehensive insurance retention plan can contribute to overall risk mitigation and financial stability.

With many new businesses in the market and many traditional financial companies shifting toward fintech, it’s not surprising to see continued merger and acquisition (M&A) activity. A common theme among these M&As is the retention of fintech branding. Many larger companies funnel funding and resources to acquired startups, mostly letting them market and brand themselves as before. This approach could play a role in long-term customer retention and loyalty.

Finally, cybersecurity continues to be one of the largest threats in the fintech industry. According to an industry report, 55% of financial institutions faced ransomware attacks last year. Cybersecurity experts generally agree this number will continue to rise, mainly due to a shift in the hacking industry. Here’s why.

Before, hackers worked alone to exploit weak areas in a business’ defense. Now, an entire industry of organized cybercrime has blossomed to target industries, sectors, and individual businesses using advanced technology. This means fintech companies must stay vigilant to help protect their business and customer data from costly cyberattacks.

 

Measuring Up: Fintech Market Review for 2022

Our risk management experts typically provide outlooks for industries we serve, and fintech is one of the most rapidly changing and exciting markets. Let’s check on some of our 2022 insights to see what has unfolded in the industry over the past year.

Big Data Exploded

As suggested, fintech businesses (and other technology-based companies) need data. These dynamics have created a need for big data and technology companies. Rather than collecting and governing data independently, fintech firms use big data companies to manage their data and insights. Some estimates expect the big data industry to be worth approximately $103 by 2025.

Insurtechs Remained Popular

The insurtech industry, like fintech, continues to drive growth and innovation. We thought that insurtechs would remain popular — and we were right. Insurtechs seem to be shifting from focusing on direct-to-consumer models, such as Lemonade car insurance or Ethos life insurance, to partnerships with other related industries. Most notably, insurtech and fintech companies are starting to pair up to offer combined services to customers.

For example, in the UK, several digital banks have partnered with insurtechs to provide insurance services to their banking customers.

Coverage Lines Tangled

Our 2022 fintech insurance trends report mentioned that coverage lines would tangle, especially in directors and officers (D&O) insurance. This forecast has held, as evidenced by the wave of D & O litigation in 2022. Many of the major D&O claims from the past year revolved around fiduciary duty, misrepresentation of value, and cybersecurity breaches.

Fintech companies in the financial industry are even more likely to be under scrutiny than other industry directors and officers. Leaders of fintech companies will likely want to develop a risk management plan to mitigate the risk of a data breach and the resulting lawsuits if one occurs.

 

What to Expect from Fintech in 2023

As in the recent past, 2023 will offer new opportunities and fresh challenges for fintech businesses. Here are our top expectations for the next year in the fintech industry.

The Rise of AI and Machine Learning in Fintech

Artificial intelligence (AI) surfaces everywhere these days, so it’s no surprise technology companies are fast to adopt it. Expect to see increasingly more fintech companies opting to use AI and machine learning to improve their data analysis and product offering.

Additionally, AI will play a major role in the customer experience. For example, as AI chatbots become more advanced, fintech companies use them to service more customer requests. Customers can chat online to get service instead of speaking with a human to resolve their issues. This approach could eliminate the need for round-the-clock customer care representatives.

Financial Data Storage Will Revolutionize

One of the most significant disruptions in the traditional finance industry is the decentralization of banking and financial data. Open banking, for example, enables financial institutions, customers, and third-party services to share consumer data seamlessly.

We will likely see this trend continue throughout 2023 in the fintech industry. Open banking will help fintech customers manage their accounts across platforms and make it easier for aggregators and marketing services to find the right products for customers. Likewise, open banking can help fintech and financial institutions share big data insights to build a stronger overall industry.

There Will Be Increased Popularity of Embedded Finance

Embedded finance is the practice of a non-financial company offering a financial product. A readily-available example is the buy now, pay later (BNPL) options on e-commerce sites. The retail store doesn’t provide financial services like short-term loans, but partnering with the BNPL company can entice more customers to make a purchase.

Fintech companies will have an opportunity as more non-finance businesses adopt embedded finance tools. Fintechs in the payment, lending, and insurance spaces can earn new customers by partnering with non-finance companies to offer embedded finance options. We expect to see a rise in fintechs who provide these services and standalone embedded finance providers.

 

How Insurance Responds to the Shifting Fintech Landscape

The ever-changing landscape of the fintech industry means insurance for fintech is also consistently changing. Insurance companies must keep up with innovations and all the new risks those innovations present. Let’s look at how insurance responds to the industry through recent fintech insurance trends.

Increased Cybersecurity Scrutiny

Insurance carriers have to keep up with rising cybersecurity risks. Many insurance carriers accomplish this task by requiring more stringent cybersecurity practices from clients. For insurance carriers to be able to take on heightened risks, they need to know their customers are following best practices. To get cyber coverage, fintech and other businesses may need to show they have a thorough cybersecurity protocol — and be able to carry out these processes t if an attack happens.

New Products for Cloud Storage Issues

More fintech and traditional finance businesses are migrating to the cloud. While this shift makes it easier for fintech to lower costs and increase scalability, cloud technology (like anything) isn’t always 100% reliable. When cloud-reliant businesses lose access to the cloud, they lose access to their customers, data, and products.

Insurance companies have responded by introducing cloud downtime insurance. Downtime coverage helps fintech companies protect their revenue streams and get cash to recover from unexpected cloud outages.

Using Machine Learning in Underwriting

Machine learning and AI are enormous benefits to the fintech insurance market. Insurance carriers are using machine learning to decrease underwriting times while increasing risk assessment accuracy. By incorporating machine learning into the underwriting process, insurance carriers can make the quote and binding process faster. It also frees up human resources for those cases that AI can’t handle, such as unique risk profiles.

Improving Digital Distribution and Increasing Direct Channel Partnerships

Many insurance carriers attempt to work directly with consumers and are using technology to do it. Digital distribution lets insurance carriers cut out the need for physical documents, in-person meetings, and slow response times. Instead, insurance carriers can use technology to quote and activate a policy online quickly. Digital distribution, in turn, makes it easier to increase direct channels to customers.

Understanding the details of what coverage your fintech company needs can be confusing. Founder Shield specializes in knowing the risks fintech companies face to make sure you have adequate protection. Feel free to contact us; we’ll walk you through finding the right policy.


Want to know more about fintech insurance? Talk to us! Please get in touch with us at info@foundershield.com or create an account here to get started on a quote. Also check our post about micromobility insurance.

 

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