Particularly in the wake of the coronavirus pandemic, FinTech companies have never been more prevalent. As it’s still very much a sector in its infancy (at least compared with the wider financial industry) there are still startups out there with insurance that simply doesn’t protect their interests.
You see, traditional insurance for banks and similar financial enterprises is not necessarily set up to cater to the technology-related exposures of a typical FinTech firm.
Conversely, tech company insurance could overlook exposures relating to financial services.
Fintech is, by its very nature, heavily reliant on data, technology and infrastructure. This poses several risks for companies that, by their very nature, are open to critical exposures that need to be covered by insurance if the business is to grow and thrive.
For example, the professional liability policies typically offered to tech companies will rarely include the ability to add first-party crime coverage.
Financial insurance, meanwhile, probably won’t include critical cover for liabilities arising as a result of tech services and activities.
There’s also the changes in regulatory structures that need to be taken into account. Your insurance needs to be PSD2 compliant, for example.
This is an update to the EU’s Payment Services Directive and it applies to a broad range of FinTech activities including AISPs (Account Information Service Providers) and PISPs (Payment Initiation Service Providers). While it is no longer a member of the EU, PSD2 is still enforced in the UK by the FCA.
The right coverage
A FinTech company is, in essence, an amalgamation of a finance and tech company and a good FinTech insurance policy should, as a result, be an amalgamation of financial and tech cover that covers everything from traditional protection all the way to cover against emerging risks – such as cybercrime.
Here, we’ll be taking you through just a few of the things that should be covered in your FinTech insurance policy.
Professional Indemnity insurance
Professional Indemnity insurance will cover you if you make a mistake and your client makes a financial loss, if you accidentally infringe industry regulations, or if you become embroiled in an intellectual property dispute.
The latter is particularly common in FinTech, as it’s still a nascent sector and innovation is rife. Professional indemnity insurance helps to cover the FinTech for claims arising from alleged failings in the provision of its services to clients, customers, and other third parties, as may arise from poor advice or inadequate servicing.
With your business being primarily digital, you’ll undoubtedly be storing and processing a lot of your clients’ valuable data online, which can leave it open to cyber attacks.
Indeed, cyber attacks cost the banking industry approximately $18 million in 2018. And statistics on “phishing” attacks in 2021 show a huge increase in this type of cyber crime. Cyber insurance mitigates this unfortunate blight by protecting you against liability, costs, and expenses if your systems are compromised through a hacking or virus attack, malware, extortion, or other types of cybercrime.
DIrectors’ and Officers’ (D&O) insurance
Directors’ and officers’ insurance (or management liability insurance) protects company directors, managers, and staff against personal liability for wrongful trading allegations. In the cutthroat world of FinTech, there are constantly allegations being thrown around between competitors and from within companies.
From claims by investors that you made a decision without shareholder approval, to errors made in financial reporting, D&O insurance can provide critical financial protection for your key decision-makers. In addition, EPLI (employment practices liability insurance) is a handy piece of cover to have in your armory, as it protects you in the event of a claim made against you by your employees.
Not all cyber insurers are willing to provide full fraud protection under a cyber policy. Consequently, you may also need a separate Theft or Crime policy that covers your FinTech for theft of money and other financial instruments that it owns or for which it’s legally responsible, committed by a third party with or without the aid of an employee, whether committed via electronic or non-electronic methods.
Employers’ liability and public liability insurance
Employers’ liability insurance is a legal requirement and should be a no-brainer as it covers you against liability for work-related injury or illness suffered by an employee.
Of course, after the COVID-19 pandemic, there might be a specific COVID insurance exclusion to look out for too, so check your policy as you renew it.
Public liability insurance, meanwhile, is similar but covers (as the name suggests) members of the public.
Business contents insurance
Finally, don’t be without insurance for your business assets – computer equipment or office contents.
Even if you’re operating out of a serviced office and are storing all of your information in the cloud, you’re likely to need protection for mobile equipment and other property that your firm owns.
In a world that’s still as fresh and malleable as FinTech, it’s imperative that you have the right kind of cover from an insurance provider that understands the sector. This is why specialist insurers and brokers are always a better fit.
Not only are they better equipped to help you with your queries, but they are best placed to understand your sector and the critical risks and pressures you face – having an insurance adviser who can appreciate both the financial and technological risk elements is crucial.
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