Insights for Fintech Leaders: A Chat With an Insurance Expert

The Evolving Fintech Landscape

The fintech industry has grown like no other in recent years — it is projected to be valued at $188 billion in 2024. Today, there are nearly 30,000 fintech startups compared to just around 12,000 in 2019. And the industry is showing no signs of slowing down innovation in the financial space.

Q: From an insurance perspective, what unique risks and challenges do fintech companies face compared to traditional financial institutions?

The reality is that, even as startups, fintech companies often must carry similar coverage as large financial institutions. And this is something they should enforce before launching their service or product, which means before generating any revenue. 

While that might not be the easiest requirement for a young company to fulfill, it does attest to their commitment to compliance and risk management from the beginning.

Q: How can fintech leaders proactively adapt their business models and practices to mitigate these kinds of risks?

The best thing leaders can do is prepare to negotiate contract terms before making partnerships. Or, at the very least, prepare to meet the contractual requirements of the larger legacy banks fintechs typically partner with. 

For example, a growing fintech could succeed by getting a contract with a more entrenched legacy bank — a household name institution. But it could take them three years to integrate and launch their product via this bigger bank, leading them to spend over $300,000 on insurance to fill the contract requirement for a signed product that has yet to be consumer-facing.

This real-life example can be a tough wake-up call for many unprepared fintechs. That’s why these companies must be ready to weather the early conditions they’re up against with favorable contract negotiations.

Insurance Solutions for Fintech

Q: What specific insurance products are most relevant and beneficial for fintech companies to consider, given their unique risk profile?

While fintechs must meet many of the same requirements as the more entrenched legacy banks, they do have unique needs, given the digital nature of their operations. So, leaders have to start out with a strong foundation of general liability, workers’ comp, and employment practices liability (EPL) if they have employees. 

However, cyber liability, errors & omissions (E&O) and directors & officers (D&O) are among the top three policies that have become no-brainers in recent years. Insurers have even resorted to developing a blended D&O and E&O policy for the fintech space, so the limits are shared — and there’s no excuse not to be covered for those risks. 

Q: What exclusions should fintech leaders watch for in their policies?

To clarify, exclusion clauses are the coverage exceptions outlined on insurance policies — they limit coverage for certain claims or general risks. Now, while they both deal with finances, most fintech coverage excludes crypto claims. 

There are plenty more exclusions to look for, but here’s a very specific example that happens often: Some competitors claim to be “crypto experts” but pepper their coverage with crypto exclusions. So, essentially, a fintech company that needs crypto coverage goes to the “crypto experts,” only to be sold a policy that excludes the specific coverage they need.

It’s cases like these that call for using a microscope to read every exclusion in insurance policies before agreeing to them. 

Q: Are there any innovative insurance solutions or tailored coverage options specifically designed for the fintech industry?

Besides the blended D&O/E&O policy I mentioned earlier, there’s also a lot of success in creating custom insurance packages that yield many financial and compliance benefits for companies.

A case we like to highlight is MaxPRO. It isn’t necessarily a fintech case, but it can easily apply to the industry, given its risk-prone nature.

MaxPRO is an exercise equipment manufacturer and a Shark Tank-level startup that needed critical coverage because they’re in a claims-intensive industry. For this, they acquired four separate policies. Once they approached Founder Shield to run year-end risk reviews and assess existing policies, we discovered their coverage overlapped in many places. There was space for savings they didn’t even know about.

We offered MaxPRO combined insurance packages that gave them more power and flexibility and reduced their annual spending by 40%.

Collaborations and Partnerships

Q: How can fintech companies collaborate more effectively with insurance providers to address their specific needs and secure optimal coverage?

There’s no better way to go about it than teaming with brokers and insurance specialists who know the space — plain and simple. Regardless of the size or promises, dive into those niche questions only a fintech expert would honestly be able to answer. 

Also, don’t be afraid to prove out insurers. If some of our clients had dug deeper into the policies of that “crypto expert,” they would have realized the massive crypto gap before diving in and ending up uninsured for what they needed most.

Likewise, be diligent about best practices. Whether it’s governance, safety, or cybersecurity, prioritize diligence. Why? In today’s risk landscape, many insurers have prerequisites for binding coverage. If your fintech business is lax on any best practices, you’re probably not getting the best coverage or deal. That’s just the way the cookie crumbles. 

Q: What role can insurance companies play in supporting the growth and innovation of the fintech industry?

Your insurance broker or specialist should be your partner, staying current on the happenings in your company. If a funding round is approaching, that broker should already have a risk management plan in mind and should be iterating on that plan with the fintech leaders in an ongoing conversation. 

At Founder Shield, our tech team is nose-to-the-grindstone daily, creating and updating our technology. Our main focus has been on user experience and collaboration. So, last year we released application updates that allow other team members or vendors to collaborate on specific policies. 

Besides easier collaboration, this update includes simplified language without the overly technical insurance jargon, auto-populated answers and coverage recommendations based on your answers. You can find more information on this release here (with GIFs to illustrate these changes!)

Future Outlook on Fintech Insurance and Recommendations

Q: What advice would you offer to fintech leaders regarding risk management and insurance strategies in the current and evolving landscape?

One thing fintech leaders can never do lightly is vetting their partners. Do it, and do it thoroughly.

And another piece of advice I never tire of saying: Stay the course with best practices. They can be overwhelming and strenuous, but they will ultimately drive success.

Q: What excites you most about the future of insurance and its potential to support the growth and success of the fintech industry?

Collaboration is my absolutely favorite thing and what thrills me the most in the insurance space. It’s about delivering those tailored results for promising companies — we help drive that success with the right policies.

The fintech ecosystem is also becoming more diverse and delivers some direct-action benefits to people. Its ability to increase economic opportunities in predominantly underbanked regions and help people easily navigate their finances through digital tools has underpinned its success. These growth prospects are also exciting to me because it indicates how vast this industry can truly become.

And lastly, emerging technology. New tech surfaces nearly every day, and with it comes many opportunities and risks. Navigating the high-risk landscapes and supporting the expansion of businesses is exciting for those in insurance.

Q: What additional resources or information would be helpful for fintech leaders to stay informed about relevant insurance developments and best practices?

I’d say don’t be shy about signing up for newsletters. My team and I usually have an inbox full of them. It’s really helpful to stay in the know and hear from other experts — getting your news at your doorstep rather than looking for it yourself.

We also have some helpful resources at our fingertips here at Founder Shield that fintech leaders can benefit from:

• We launched The Glossary last year, and it has proven incredibly useful to untangle complicated insurance terminology.
• And, we offer what we call the 360 Risk Assessment, where we review your current policies and provide a real-time breakdown of current threats, any gaps you might have, and future insurance needs based on your outlook. 

We hope Wil’s insights have given you some perspective on insurance practices from the insurer’s side and encouraged you to connect more with insurance specialists through every stage of your startup. At Founder Shield, we like building long-lasting relationships with our clients so we can support them throughout their company’s growth.

Connect with one of our specialists to know exactly what coverage you need and how Founder Shield can make it happen for you.