Insurance for Fintech Companies

Insurance for fintech companies is usually purchased in a package or portfolio. This means the financial lines insurance form part of a single package with a single insurer. This is particularly common for small and medium-sized companies.

The most common package combines professional indemnity, crime insurance, directors’ and officers’ insurance and cyber insurance. Recently, some insurers have started to offer public and employers’ liability too, and in some cases office and computer equipment extensions.

We advise you get professional indemnity, cyber and directors’ and officers’ insurance as a minimum. In fact, depending on your Financial Conduct Authority (FCA) permissions, professional indemnity might be compulsory.

Depending on whether you handle client funds on your own platform, crime insurance might or might not add value. We can help advise you.

Whatever you decide, it’s crucial you use the same insurance provider for both professional indemnity and cyber insurance. If something goes wrong with your platform or software, related to a cyber-attack, it can result in complaints from clients too but having the same provider handling the cyber and professional indemnity claims will help protect your business.

In recent years, we have seen an increase in claims, in part driven by social media and campaigns by some law firms, often referred to as ‘claims farmers’. These campaigns, previously focused on large investment providers are now targeting companies of any size.

Professional indemnity for fintech companies is unique as it should cover both traditional claims linked to allegations of mistakes and negligence, but also claims related to software deliverables, accessibility and performance.

In financial services that is typically anything that is deemed to be a complaint under Financial Conduct Authority FCA rules.

It will help you provide a formal response to any complaints and will also cover any compensation that the Financial Ombudsman Service, you or your insurers deem payable.

Comprehensive professional indemnity for fintech companies must also cover the company’s reliance on software. You may also be reliant on up-time, accessibility, but also the software working as it should.

We know that PSD2 is a type of insurance that people often search for but it’s not something insurers usually sell as a separate product. Instead, most leading insurance companies will cover the activities associated with PSD2 within their fintech insurance products.

A fintech insurance product will have language related to PSD2 to ensure sufficient coverage for Account Information Service Providers (AISP), Payment Initiation Service Providers (PISP), Electronic Money Institutions (EMI) and Payment Institutions.

It is also a Financial Conduct Authority requirement for those applying for permissions related to AISP or PISP activities to have sufficient insurance. This will need to be shown as part of your application process and maintained at all times.

Fintech companies hold sensitive data, have access to sensitive systems and in some cases handle client money. As such, they are a huge target for cyber criminals.

In addition, the knock-on effects of cyber-attacks in the financial services industry can be more catastrophic than cyber-attacks in other industries.

Cyber insurance will provide essential protection and assistance for:

• Incident response assistance.
• IT forensics.
• Legal advice and regulatory costs.
• Crisis containment and communication.
• Loss of revenue and reputation.

This can be complicated but insurers and brokers should be transparent about exclusions.

We will be able to advise but it’s worth knowing that:

• Most policies will exclude claims in the USA and Canada and some insurers will restrict to UK claims only.
• More obvious exclusions are fraud, unless the fraud relates to an employee acting without consent or knowledge of directors and managers.
• Many insurers will ‘aggregate’ coverage meaning insurers will apply a policy cap to all claims. This can restrict cover significantly. For example, you may purchase £1,000,000 professional indemnity, £1,000,000 cyber and £1,000,000 directors’ and officers’ insurance, but the insurers will apply an overarching policy limit of £1,000,000 meaning the total for all such claims will be £1,000,000 throughout the policy period. The result is £1,000,000 professional indemnity insurance can exhaust the cover, leaving directors with no cover. Sometimes, you’ll only be offered aggregated cover but with separate policy limits for each module (professional indemnity, cyber and directors’ and officers’ insurance). If this is affordable it’s an approach that should be carefully considered.

We cover fintech companies of all types:

• Including but not limited to trading platforms, payment services, e-money institutions, crowdfunding, P2P platform, credit monitoring, and financial services application programming interfaces of all types.
• Firms of any size.
• Regulated and unregulated fintech companies.
• Appointed representatives.
• Those operating within the Financial Conduct Authority sandbox or those needing PSD2 cover .

There’s no straightforward answer to this but we’re here to advise.

Your Financial Conduct Authority (FCA) requirements might determine how much you need. Depending on your FCA permissions it may be compulsory for you to have a minimum level of cover, particularly if you have exposure to consumers. That minimum for consumer related business (advisory) is often £1,850,000.

For larger businesses, you need to weigh up the cost of insurance versus the policy limits purchased and you’ll need to consider several factors, such the services performed, fees charged, types of investors/clients, and previous complaints and claims.

Directors’ and officers’ insurance can be more prescriptive if your firm has external officers that support the functioning of the firm, such as professional investors. Professional investors may insist that the funds managed have a minimum level of directors’ and officers’ insurance linked to the level of investment. It’s also common for those investors to insist upon key person insurance for the lead fund managers.