Overview of the Financial Services industry
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.
Some of the biggest risks Financial Services companies face
Why is Insurance for Financial Services Companies 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.
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What Insurance do Financial Services companies need?
Cyber Insurance
What it covers:
This coverage protects your organization from lawsuits, fines, and penalties arising from a hacking attack or data breach. It can also reimburse the company for its direct expenses, such as breach notification costs, credit monitoring, data restoration, and forensic analysis.
Why you need it?:
If you collect any personal or organizational information, have a “login” feature on your site, integrate with another organization’s systems in any way, have employees who could fall for phishing scams, generate online content (i.e., blog posts), or rely heavily on email communications, you need cyber liability insurance.
Professional Liability Insurance
What it covers:
Also referred to as “Errors & Omissions” or “malpractice” insurance. It covers financial services companies if an act, error, or omission committed in the course of the company’s performance of professional services is alleged to have caused a financial loss for a third party.
Why you need it?:
Complex litigation is expensive, and there’s a lot to go wrong for financial services companies in particular. The policy responds to the threat of professional service disputes by paying legal fees and judgments or settlements that result from a lawsuit for an alleged failure in the provision of professional services.
Property Insurance
What it covers:
Building coverage protects properties that are owned, while business personal property coverage reimburses for covered damages to the contents of a building. Lost income and extra expenses caused by a covered loss can also be addressed by business interruption coverage.
Why you need it?:
Any company with a physical presence runs the risk of their tangible property being damaged or destroyed. If you hold large amounts of inventory or own equipment, you’ll often have a lot at stake. On top of that, renting temporary office space after a fire is a surprise cost that no business needs to navigate.
Crime Insurance
What it covers:
It protects the company from loss caused by specific legal activities. Unlike many other commercial insurance policies, it has nothing to do with defending against third-party lawsuits. Instead, this policy reimburses the company for losses of money, securities, or tangible property directly experienced.
Why you need it?:
Most businesses are exposed to the risk of criminal activity. This insurance protects your company from crimes committed within the company and crimes committed by people or other factors outside of your company. Common claims include:
- Employees stealing money from the company or clients.
- Inadvertently accepting stolen credit cards, counterfeit credit card numbers, or payments from unauthorized users.
- Non-employees stealing from the company’s office or the premises of the company’s bank.
- Computer and wire transfer fraud.
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How much does Insurance for Financial Services Companies cost?
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
The term “financial services” covers an array of industries. As mentioned, the one making the biggest splash right now is fintech. However, here are a few other financial services companies to consider that benefit from having a robust risk management program:
- Asset management firms
- Property & casualty insurance
- Life & health insurance
- Financial exchanges & data
- Insurance brokers
- Investment banking & brokers
- Consumer finance
- Payment brands
- Accounting firms