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Whether it’s investment or lending, the financial services industry focuses on managing money and assets. Plus, the age of fintech has spurred this industry onward with significant force. Paypal and Stripe make payments a breeze, whereas Robinhood and Invstr help individuals invest in the stock market via hassle-free apps.
The financial services industry is a current hot spot for startups and “unicorns,” which threaten to disrupt traditional businesses. To accommodate the ever-changing demands of a tech-savvy market, many financial services companies are becoming increasingly diverse. This approach creates a dynamic environment in the industry. Organizations specialize and diversify in hopes of higher yields, fewer costs, and safer investments.
3.5
tnCompanies worldwide lose $3.5 trillion to fraudsters every year — and the figures continue to devastate small and large businesses.
$4
mThe average total cost of a data breach in 2020 was $3.86 million and the average cost per individual record that was lost was $150 (IBM).
Why is Insurance for Financial Services Organizations Important?
Risk management programs can quickly flop without adequate insurance coverage in place. This situation means that some financial services companies are at risk of losing massive amounts of revenue and eventually shuttering due to severe financial loss.
Insurance helps to protect financial services companies from third-party financial damage, lawsuits, and accident claims. With insurance as a safety net, organizations can stay in the game for the long run.
Cybersecurity
From ransomware to malware to phishing (and more), data breaches typically cost businesses an average of nearly $4 million globally. As a result, cybersecurity is a primary concern of financial services companies. It only makes sense, too, as cybercriminals are becoming more threatening, executing sophisticated and multi-tiered cyber attacks. These threats can add up quickly, causing significant financial damage to an organization.
Complex Regulation Compliance
Most fintech leaders — around 43% — believe that regulations can slow industry growth. With all the hoops to jump through, it’s often tricky to scale internationally as current operations and pre-existing regulations don’t always work well together. Although sidestepping regulatory requirements isn’t an option, financial services companies face bottleneck situations when it comes to regulatory non-compliance.
Employee Fraud
According to the Association of Certified Fraud Examiners, US businesses will lose around 5% of their gross revenues to fraud. When the swindling comes from within the company, it stings even more. Employee fraud can come in many forms: inventory theft, expense reimbursement fraud, embezzlement, etc. Financial services firms must be on the lookout for inside trickery continually.
Bodily Injury
It might seem odd to consider a financial services organization as a place to sustain an injury. However, employees can still get hurt on the job, and clients can injure themselves on the premises, as well. No businesses wants to have out-of-pocket medical costs carve away at its revenue. As a result, financial services organizations must protect the people they serve.
Recommended policies for Financial Services companies
Core Coverage
These coverages form the foundation of any risk management program for financial services companies:
General Liability
General liability offers broad protection against some of the most fundamental risks companies face. Known as “slip-and-fall” or “all-risk” insurance, this policy covers personal or property damage and bodily injury occurring on the business premises.
Workers' Compensation
When employees sustain work-related injuries, employers are typically responsible for their medical costs and lost wages. This policy covers these expenses, protecting employees while simultaneously keeping financial services companies running smoothly.
Errors & Omissions Insurance
Professional liability, also known as errors and omission (E&O) insurance, covers companies in third-party or client lawsuits claiming substandard work or service. Work errors or oversights, missed deadlines, budget overruns, etc., often result in costly cases — but E&O insurance responds to these mishaps.
Cyber Liability
Cyber insurance protects companies from third-party lawsuits relating to electric activities (i.e., phishing scams). Plus, it offers many recovery benefits, supporting data restoration and reimbursement for income lost and payroll spent.
Financial Services Specific Coverage
These policies are essential for or can be tailored to the needs of companies operating in the financial services space:
Crime Insurance
Whether employees steal from you, a thief robs your armored car, or you receive a forged check or fraudulent wire transaction, money theft happens in many ways. Crime insurance guards your company against damages from these particular crimes.
Directors & Officers Insurance
Shareholders, competitors, investors, etc., can sue a company’s directors and officers, putting their personal assets at stake. Directors and officers (D&O) insurance protects these assets from lawsuits alleging leaders of wrongful acts managing the business.
Property Insurance
Whether it’s a devastating fire, natural disaster, or burglary, property insurance responds. This policy reimburses companies for direct property losses, supporting recovery and momentum.
Financial Services Insurance Frequently Asked Questions
The cost of insurance for financial services companies will depend on several things, including the company’s size and development stage. Other factors include:
- Exposures: risks being insured.
- Company practices: views on safety, compliance, and risk management.
- Program structure: the amount of deductible and willingness for a company to assume more risk
- Claims history: the type and amount of past claims against the company
Types of Financial Services Companies that need insurance
- Asset management firms
- Property & casualty insurance
- Financial exchanges & data
- Insurance brokers
- Investment banking & brokers
- Consumer finance
- Payment brands
- Accounting firms
