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 a Fintech company.
Or, maybe you’re even involved in blockchain and digital wallets, some of the most exciting Fintech advances in decades. Front-end or back-end, it doesn’t matter — Fintech’s goal 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 to the combination of new entrants at the bottom and M&A-hungry behemoths at the top. This combo creates a risky environment regarding 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 crucial 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 in Fintech, those errors are costly and traceable. An E&O policy is a common-sense protective measure to help Fintech 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.
Intellectual Property Protection
The Fintech industry is fueled by software and technology, making intellectual property (IP) something to defend. Consider copyrights and trademarks as prime examples of how this industry protects its IP. Fintech companies must also think about contractual measures to ensure their innovation is protected.
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.
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 Fintech companies running smoothly.
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. In the Fintech space, we recommend blended coverage of D&O and E&O insurance.
Blended Errors & Omissions & D&O Insurance
This blended form was created because one “wrongful act” can lead to a claim on both the E&O and D&O sides of things. For example, if a customer sues for an oversight that caused them a loss (E&O), that same oversight can lead to a regulator potentially bringing action (D&O). With blended coverage here, we avoid gaps or gray areas in coverage and the possibility of two insurers pointing fingers arguing who should pick up the claim.
Types of Fintech Companies that need insurance
- Crowdfunding Platforms
- Mobile Payment
- Insuretech
- Robo-Advisors
- Regtech
- Blockchain & Cryptocurrency
- Stock Trading Apps
- Budgeting Apps
Fintech Frequently Asked Questions
The cost of insurance for Fintech 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
