The global FinTech market is growing exponentially, representing opportunities and their unique risks associated with companies operating in this space. As FinTech's reach expands, and their capabilities evolve, they must have the best policies.
FinTech is much different than traditional financial institutions and does not share many of the risks associated with running a digital business. More often than not, old manuscripts from carriers still in use have not kept pace and exclude many of the perils modern FinTech's face.
Here are five reasons why you should look at FinTech insurance:
1. Your policy does not insure you.
FinTech insurance policies exist to fill a gap surrounding technology companies that transact funds and provide dashboarding for consumers. Many domestic carriers do not offer FinTech platforms coverage—for example, first-party crime, cyber and intellectual property.
2. Your carrier is not thinking about superior protection for your directors.
Insurance forms an integral part of your overall risk management strategy. FinTech insurance protects your business's value, where traditional insurance carriers do not provide security in the event of litigation. Critical for start-ups, mainly those trading in sensitive financial information such as online banking, where regulation is still evolving, and threats continue to emerge.
3. No one is thinking about changes in regulators' requirements
FinTech companies have greater financial exposure due to regulatory changes. Errors or Omissions Insurance can be imposed by various jurisdictions to meet your capital requirements. Don't be caught missing this critical component.
4. Your policy does not offer complete protection for its directors and officers
We all know that members of senior management and boards can be held personally liable for claims brought against the company. Claims can be brought forward by customers or clients, shareholders, lenders, competitors, and contractors. Without FinTech protection, it can be a barrier when it comes to recruitment, as it enables companies to attract and retain the best directors available.
5. A Specialized Fintech Policy makes risk easier to manage
FinTech insurance policies are comprehensive and have been designed with the work of FinTech companies in mind. Not only are these policies an effective risk management tool providing peace of mind for the company, they're also increasingly important when it comes to hiring and retaining the best talent and can prove vital in helping companies adhere to requirements from regulators.
Top 5 risks for FinTech businesses
1. Professional liability
Negligent advice and failings in client services are common risks for any company providing financial services, especially FinTechs, who offer new financial products through new distribution models. FinTechs can also rely on third-party contractors, adding liability risk due to third-party negligence.
2. Regulatory environment
New technology, new products, and further distribution bring a wealth of opportunities and unique regulatory exposures. FinTech companies will need to ensure they keep on top of implementing suitable and satisfactory risk management systems. As the FinTech market evolves, so will the regulatory environment, and a significant risk for FinTechs will be keeping pace with the regulators' latest updates. FinTechs will also have to consider differing regulations in multiple territories should they operate internationally.
3. Theft of funds
The majority of FinTechs deal with a high frequency of funds movement. High volumes of payments, transactions, and customer accounts and the fast growth and implementation of new technology leave them vulnerable to theft. These thefts could be by an employee or an external party.
4. Cyber event
Given the nature of their operations, FinTech companies are prime targets for cybercriminals. Network security, data breaches, or even a denial-of-service attack - as well as damage and rectification costs following these incidents - should be a significant concern for FinTech companies.
5. Technology failure
Innovative technology is essential for FinTech companies - it is how they have disrupted traditional financial services - but this heavy reliance on technology infrastructure means firms can be vulnerable. Technology failure can mean customers are unable to access services resulting in lost income or lost customers.