Why do FinTechs need bespoke insurance?
The global FinTech market is growing rapidly, and so too are the opportunities and risks associated with companies operating in this space.
As the capabilities of FinTech organisations evolve, it’s vital that they have the best possible cover in place. Traditional financial institutions insurance products will not necessarily provide cover for technology related exposures. Likewise, policies for technology companies will often overlook or specifically exclude exposures relating to financial services or advice. As FinTech companies grow in prevalence, these gaps in insurance coverage could present a problem.
Here are five reasons why FinTech companies should secure specialised insurance designed to meet their unique needs:
Specialist FinTech policies provide comprehensive cover
Specialised FinTech policies fill the gap left behind by traditional policies. Often, professional liability policies for technology companies won’t include cover for financial services, nor do they have the ability to add first party crime coverage for financial institutions. Similarly, traditional financial institutions policies won’t include critical cover for liability arising from technology services and activities.
A good FinTech policy weaves together cover for the most critical exposures these businesses face. This includes the standard covers all businesses require, as well as protection against emerging risks, like cyber and intellectual property.
FinTech coverage is a key part of risk management strategies
For FinTech organisations, insurance policies can be a hugely important part of overall risk management. Specialist insurance coverage protects the value of the business and can provide security in the event of any threats of litigation. Risk management is a significant consideration for start-ups, particularly those trading in an emerging sector like FinTech, where regulation is still evolving and threats continue to emerge.
Companies need to stay ahead of regulators’ requirements
The FinTech market never stands still and neither do the expectations of regulators. We can expect to see FinTech companies face increasing demands from regulators. In some jurisdictions and for certain activities, regulators may require the purchase of professional indemnity (PI) insurance. For example, in the UK many FCA-regulated companies are obliged to purchase PI insurance. At the forefront of the market, the UK can tell us a lot more about potential FinTech regulation too. In some cases, companies that are found to have inadequate PI insurance will also be in breach of their capital requirements. Clients and prospective partners might even insist on comprehensive liability coverage before any deals are done.
Policies offer complete protection for directors and officers
Members of senior management and boards at FinTech businesses can be held personally liable for claims brought against them for any action taken during their time as a director or officer.
Specialist FinTech policies offer management liability – or D&O - insurance, which protects the personal assets of the directors and officers, as well as those of their spouses and estates. This protection is also now proving significant when it comes to recruitment, as it enables companies to attract and retain the best directors available.
It’s worth noting that claims against directors can be brought even if the company is not a public company. Claims can be brought by customers or clients, competitors or contractors, third parties and even shareholders or lenders.
A single, specialized policy makes life easier
A comprehensive FinTech policy means gaps and duplications in coverage can be avoided. Choosing a specialist insurance product also ensures that in the event of a claim, the handling and payment process runs smoothly.
If a FinTech company opts for multiple policies, it leaves itself open to the risk of a slow and complex claims experience, and a potentially difficult process if multiple coverages are triggered at once. A single policy designed specifically for the insured is also usually a more cost-effective solution than multiple policies covering different exposures.
As the market for FinTech products and services develops, companies operating in this space need to be aware of potential exposures. Specialist FinTech insurance policies have been designed with the work of FinTech companies in mind, and they therefore provide comprehensive coverage for the exposures these companies face.