Insurance for Financial Technology (FinTech)

Only a selected few can touch upon the fintech business insurance industry like pros. Handling a company in a highly competitive industry is demanding, to say the least. And so, fintech businesses have a lot of operational liabilities for insurance to look after - software, intellectual property, key employees, you name it.

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So, you shouldn’t hesitate to protect your financial technology company with business insurance and risk management services.

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Financial technology, commonly known as fintech, is an industry dedicated to creating modern and evolving technology that enhances financial services. Some examples of businesses in the fintech industry are companies that process credit card transactions, enable transferring capital to another bank account, or crowdfunding by using a mobile banking app.

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Nowadays, the fintech field has advanced and expanded with blockchain and digital wallets as the most appealing assets of the 21st century. The purpose of fintech is to upgrade the whole industry according to modern standards, including both front-end and back-end. Looking at the technology ecosystem in general, financial technology stands out as one of the fastest-growing fields. With the most dynamic structures on the market today, fintech businesses are rapidly modernizing an industry with a long-standing need for innovation and leading a dramatic take-over of the finance world. This is why fintech startups are becoming increasingly attractive to acclaimed investors and venture capitalists. For instance, the financial technology sector raised $41.7 billion dollars during the first half of 2018, which was a greater amount of capital than the one raised for a whole year in 2017.

The diversity of financial technology is the primary factor that enables the fast growth of this industry. Fintech startups are dedicated to solving a wide range of issues linked to almost every other branch of finance. At the same time, the fintech sector leverages a pretty diverse range of technologies, such as machine learning, blockchain, mobile apps, artificial intelligence, big data, and more.

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As for the risk factor that fintech businesses face - it exists for sure. 

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The merge of powerful tech giants at the top and new startups at the bottom makes financial technology a fiercely competitive industry where all brands need to take measures to protect themselves from risks. In this challenging climate, fintech businesses face significant risks in terms of customer acquisition and retention. Another potential threat is the possibility of IP litigation from competitors - or possible unfair trade practices. And so, management teams are required to address these essential concerns through convenient policies.

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The main purpose of fintech companies is to offer a professional service to their clients, therefore the implementation of insurance policies is a necessity, especially when we speak about errors and omissions. Mistakes happen to every employee at work, but when it comes to fintech - they can cost businesses a lot. In case of an incident with a client or affiliate losing money as a result of the personnel’s mistake, the company can face a lawsuit. 

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Below are some of the most common threats that call for implementing a fintech business insurance program as a common-sense protective measure for your financial technology business.

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• System errors - In their essence, fintech companies are strongly dependent on third-party service providers and back-end systems for their whole business data and management. Any kind of technical outage or downtime can bring catastrophic setbacks to the company, such as the loss of customers and litigation.

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• Data leakage - Another serious incident that can take place in fintech businesses is the theft and transmission of sensitive data by unauthorized individuals.
  A striking example of this was the Equifax Breach in 2017, in which the lack of a server security patch resulted in the leakage of 145.5 million customers’ accounts. 

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• Endangered intellectual property - Typical for an industry revolving around software and technology, the protection of intellectual property is a priority in the fintech sector. Copyrights and trademarks are major examples of how fintech businesses protect their intellectual property. For further protection of innovations, these businesses also take additional contractual measures. 

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• Regulatory non-compliance - According to more than 40% of fintech entrepreneurs, handling all the complex regulatory requirements is a major threat to the growth of individual businesses and the industry overall. Many business operations may not align with preexisting regimes, and these regulations could halt international scaling. 

The aforementioned insurance plans are fit to financial technology companies of all sizes. Depending on the budget at hand, the least you can do to protect your brand is choose partial coverage for the most critical aspects of the business.

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As the majority of fintech brands deal with sensitive data on a daily basis, strong privacy and safety protocols are a must. Ultimately, insurance policies are the Jack of all trades, and bring a sense of security and support to your company’s viability.

When it comes to commercial business insurance, there are several kinds of coverage required in almost every industry. For example, every business that takes up a working space (office) and has employees should consider obtaining workers’ compensation, general liability insurance, property insurance, and employment practices liability insurance - regardless of the industry it belongs to. 

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What’s more, financial technology businesses function in a unique way and therefore require several specialized fintech business insurance types, such as:

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Technology Errors and Omissions Insurance‍

This type of financial technology business insurance is also called professional liability insurance and it is one of the crucial areas of coverage that every fintech business should have. 

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Software and applications are a necessary means through which financial technology companies provide system advice to clients. The Technology Errors and Omissions policy prevents the company from facing legal consequences in case of technical mistakes or errors. 

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Cyber Liability Insurance‍

The flexibility of handling modern technology and incorporating valuable innovations is the main factor that grows fintech companies. However, the extent to which these businesses rely on cyberspace can also cause their downfall.

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With the rapid growth of the financial technology industry, there is also an increased frequency of cyberattacks against fintech businesses. Cyber liability insurance is here to have companies covered in case of data leakage or a cyber-attack involving ransomware demands. 

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If a fintech company faces an attack that results in lost or misused sensitive data, cyber liability coverage will take care of the financial loss that comes from investigative measures, claim settlements, extortion payments, and all other expenses for the PR part in handling the crisis. 

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Intellectual Property Insurance‍

Another important aspect of handling a fintech business is ensuring the protection of intellectual property. This can often be a complex ordeal, so it’s strongly recommended to go for intellectual insurance that will have your brand covered in case of unforeseen legal expenses.  

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As an industry of innovation and development, the financial technology sector is crawling with patent trolls and unfair competitors that can accuse you of patent infringement. Whether your company files a claim of patent infringement against a competing company or faces allegations of it, IP insurance will get all the expenses covered.   

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Commercial Crime Insurance‍

Common legal concerns among financial technology brands are also employee theft and third-party financial scams.
Here, a commercial crime insurance policy will have your business covered.

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What makes this fintech business insurance policy different from other kinds of insurance is that it only compensates businesses for the capital, stock, property, and other assets lost in the incident - without covering the legal expenses.

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Directors and Officers Insurance‍

Having in mind the rapid growth and high-risk nature of the financial technology industry, it is highly recommendable for leading figures - think, directors and officers - to protect their personal assets. 

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These responsible positions can face allegations of unfair treatment of clients, investors, shareholders, regulatory bodies, and others. A company that obtains Directors & Officers insurance gives its leaders proper protection of their assets and backs them up in an effective and risk-taking approach.

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Another important benefit from this insurance policy is that attracting venture capital firms for funding rounds is an essential part of handling an acclaimed brand. Plus, having D&O coverage is a prerequisite for this process.

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Key Person Life Insurance

Most prominent financial technology businesses are hierarchically structured, with critical positions at the top - founders, CEOs, CFOs, and lead developers. Individuals at these positions are essential for the whole business management and growth. Therefore, having key person life coverage is a no-brainer. 

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A key-person insurance policy offers financial protection for the company in the unfortunate event of the death of a key individual - or their inability to continue performing their professional tasks. The policy will cover all standard expenses during the process of selecting and recruiting a replacement for the shortcoming. 

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When it comes to choosing an insurance policy for your business, budget is one of the most important factors to take into account. This process can often be tricky, especially in the early days of a company’s growth. Insurance expenses will often fluctuate in the early stages of a fintech startup, which is why you need to thoroughly calculate these changes.

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There are several main factors that determine the cost of your insurance, such as the:

• Types of policies your business needs
• Number of people covered
• Amount of funding the business has
• Company’s estimated annual revenue
• Company’s exposure to threats 
• Company’s values regarding risk management, compliance, and safety 
• Structure of the business, the amount of deductible, and the ability to assume more risk
• History of previous claims the company has faced

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Since cost calculations can vary for all the different types and sizes of fintech businesses, it is recommended to use a calculator to help you estimate the cost of your insurance - based on the expenses seen in similar competitors.

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ADVISOR TIP: While online calculators use a huge amount of data to create this tool, it still offers only an estimate of the budgeting. For a more precise estimate, you should work with an advisor to get a quote aligned with your startup’s specific needs. 

Choosing proper financial technology insurance plans for your fintech business doesn’t have to be a complicated process. Insurance providers strive to make the customer experience as smooth-running and efficient as possible.

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First and foremost, you need to gather all necessary information that insurance providers have to consider in order to supply the best possible quote. When opting for an insurance plan, you’ll work with real people who live in your proximity and who prioritize fair professional relationships. Here, a meeting in person would be useful. Essentially, the main task of brokers and advisors is to share their knowledge on insurance and explain the details of offered policies to clients. Brokers also strive to understand the nature of your fintech business and its specific coverage requirements. They’re here to educate you on the features of insurance and risk management practices and assist you in the growth of your business.

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Nowadays, many fintech businesses can complete the process over a shorter period because artificial intelligence supports a great deal of underwriting. However, most policies are still reviewed by actual individuals with extensive experience in partnering up with underwriters at each insurance company. 

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The procedure of introducing quotes for your fintech business has several main steps:

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• Advisor introduction - you can be introduced to a particular advisor through a phone call, video call, email, or meet them in person. It all depends on the specific needs of the business. The team of insurance experts establishes a partnership with your team and proceeds to assist you in the company’s risk management. All complexities of your brand are taken into consideration. During the process, you can ask the advisor anything you need to know and provide them with information about your business management before you finally get your insurance plan. 

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• Data accumulation and underwriting - in this phase, your team and the insurance experts team will tackle underwriting questions and go through all the relevant details for the engagement with the insurance market. There are several options for going through this process - you can do it in person, via email or phone call, via special smart-form technology, or by filling out a PDF form. 

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• Quote proposal and review - with all the data provided to your advisor, the next step is for them to get in touch with the insurance market and offer the right quote(s) for your business. The waiting time varies from one day to a week. 

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• Final choice of coverage - now when everything is set up, you can finally get the coverage for your company by signing the documents, deciding on payment, and choosing a start date. 

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A Word Before You Go

Given that fintech companies earned $25.6 billion in investments in H1 2020 alone, a proper insurance plan is more than necessary to establish. And given that, in 2020, insurance fintech companies acquired close to $3.8 billion in investments, it is undisputed that fintech businesses do care to stay on the safe side of the industry.

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Speak to an insurance advisor today and learn more about how we can help protect your businesses future.