Overview
Financial Technology (Fintech) is an industry focused on the application of modern and evolving technology to traditional financial services. If your company process credit card transactions, enables crowdfunding or transferred funds to another bank account through a mobile banking app, you can be considered as a Fintech company. Or maybe you’re even involved in blockchain and digital wallets, some of the most exciting Fintech exciting advances in decade. Front-end or back-end, it doesn’t matter. The goal of Fintech is to move the entire industry forward.
What are we not talking about? Banks, investment vehicles like private equity or hedge funds, insurance companies or securities broker-dealers. While some within these spaces exhibit every quality of a “Fintech” company, these are all considered “financial institutions” in the insurance world and, as such, present unique coverage concerns.
Why is Insurance for Fintech Companies Important?
Fintech companies are often required to protect themselves from other companies in their space. Competition is fierce in this industry, thanks in no small part to the combination of a crowd of new entrants at the bottom and a stable of defensive, M&A-hungry behemoths at the top. This creates a risky environment both in terms of customer acquisition/retention as well as the threat of unfair trade practice or IP litigation from competitors. Policies such as directors & officers, errors & omissions, and IP insurance can address many of these concerns.
Since the main function of these companies is to provide a professional service, few policies are more important than professional liability (errors & omissions) insurance. If a customer or affiliate claims they lost money as a result of your mistake, a lawsuit can soon follow. We’re all human and errors happen, but with Fintech, those errors can be both costly and easily traceable. An E&O policy is a common-sense protective measure to help these companies manage risk.
Data Breach
When sensitive information is data is copied, transmitted, viewed, stolen or used by an individual unauthorized to do so. The Equifax Breach in 2017 that leaked 145.5m customers accounts (including social security numbers) was due to a server security patch that was not implemented.
System Failures
By nature Fintech companies are heavily reliant on back end systems and third party services providers for their frameworks, servers and data services. Any outages, downtimes or failures can result in significant losses for customers and the company. In many cases litigation can follow as a result.
Regulatory Non- Compliance
43% of Fintech sector leaders think that regulations have the potential to slow the growth of the industry. Navigating the complexity of regulatory requirements is a major risk for any Fintech company. Often operations do not fit easily into preexisting regulatory regimes, especially if you want to scale internationally.
Recommended policies for Fintech Companies
Core Coverage
These coverages form the foundation of any risk management program for Fintech 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.
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.
Employment Practices Liability Insurance
Any company with employees faces the risks of allegations, such as discrimination, wrongful termination, breach of contract, etc. This coverage protects companies against lawsuits related to employment practice
Fintech Specific Coverage
These policies are essential for or can be tailored to the needs of companies operating in the Fintech space.
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.
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.
Workers’ Compensation Insurance
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 companies running smoothly.
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Types of Fintech Companies that need insurance
- Crowdfunding Platforms
- Mobile Payment
- Insuretech
- Robo-Advisors
- Regtech
- Blockchain & Cryptocurrency
- Stock Trading Apps
- Budgeting Apps
