Understanding fintech insurance

As a fintech company, insurance plays a critical role helping your business both meet contractual requirements and ensure the company’s growth and resilience. This informative guide will provide you with the essential insights and strategies needed to navigate the complexities of insurance for your fintech enterprise.

Legacy insurance isn’t built for fintechs who need to move quickly - and diligently - to secure large limit policies early in their maturation and that include nuanced coverages specific to their business model. The outdated legacy experience of endless applications and emails, leading to generic policies from insurers who don’t understand fintech businesses, simply doesn’t work. It can hamper your ability to sign enterprise financial services partners and leave you exposed to potentially catastrophic risks that more appropriate policies can cover.

Enter: Vouch. We’ll dive into more of the details of how Vouch streamlines a tailored, digital insurance approach for you below but first, let’s cover some of the risks facing fintechs, how you can assess your own company’s risk-profile, and the types of insurance coverages to consider.  

What are the risks facing fintechs?

As a fintech leader, you are navigating an era of rapid technological advancements — with great power comes great responsibility. 

There’s no “move fast and break things” in fintech. When you’re dealing with peoples’ money — whether it's processing payroll, helping individuals save for retirement, or the myriad of other ways fintech is materially improving lives — you can’t cut corners. Even a minimum viable product isn’t so minimum. From the get-go, you have to handle sensitive financial information, navigate a spaghetti-esque tangle of regulatory requirements, and secure your systems all while achieving continual growth.

That’s a tall order even for the strongest teams. Resources are frequently stretched which can lead to unforeseen vulnerabilities in systems and processes. The sensitive financial data, and role as a trusted partner to clients, makes fintechs a prime target for cyberattacks, including data breaches, hacking, and ransomware. Any regulatory missteps become headlines that compound challenges.

Given the unique risks and challenges fintech companies face related to scaling teams, cybersecurity, and regulatory compliance, choosing an insurance partner with a deep fintech understanding and expertise can make all the difference for your business.

The Vouch team has served 700+ fintech companies including:

• Credit and lending platforms
• B2B, B2C, and C2C payments platforms 
• Personal finance and wealth management apps
• Insurance and insurtech companies
• Real Estate & Mortgage platforms
• Broker-Dealers (BDs), Registered Investment Advisors (RIAs), Money Services Businesses (MSBs), and most other regulated entities 

The Vouch team of advisors, underwriters, claims managers, and specialty brokers understand the specific kinds of risks you face and can provide tailored solutions that meet regulatory and contractual requirements. They can also advise on customized coverage to address specific exposures such as data breaches, fraud, and advice provided by regulated financial experts. In the event of a claim, their familiarity within the industry can help to expedite the process and ensure you receive the necessary support. 

What kind of insurance does my fintech business need?

Understanding the various factors that determine your fintech insurance coverage needs is imperative. Factors include your company’s growth stage, revenue, the types of services offered, and the regulatory environment in which you operate. The sensitivity of the financial data you handle and your exposure to cybersecurity threats are also critical considerations. 

Use the chart below to help guide you through a company risk self-assessment then speak to an insurance advisor who can answer your specific questions and tailor coverage that can best protect your company.

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What to consider when choosing insurance for my fintech company

Given the risks discussed above, the following should be taken into consideration when determining where to secure the most comprehensive coverage for your company. 

Policies Engineered for High-Growth Teams

Insurers focused on startups are designed differently. They’re digital-first and designed to move at your velocity. Whether it’s rapidly turning around insurance needs to unlock a big enterprise contract or proactively recommending midterm limit increases to keep downside protection moving in lockstep with hypergrowth, startup-focused insurers are built differently.

Vouch was built to move at startup pace. Now with over 4,500 startup clients from pre-seed through pre-IPO, Vouch has robust proprietary claims data that can help your startup know how much insurance you need, by policy, based on where your company is in its journey.

Policies Designed for FinTech

At Vouch, we’re constantly on the lookout for how we can help fintechs offset the next emerging threat. As artificial intelligence has gone from fringe to forefront, we launched the world’s first AI policy that includes affirmative coverage for allegations of algorithmic bias and discrimination like those that may violate the Equal Credit Opportunity Act and similar legislation. With 700+ fintech clients at all stages of growth, we have the pulse of what’s emerging now. Example:

INCIDENT:

Fintech, Inc. (FI) manages a platform that provides information to potential investors in small LLCs seeking capital. FI does not solicit or sell these investments; rather, it provides information about each LLC to the potential investors. 

When FI learned that one of the LLC’s listed on its site was alleged to be a ponzi scheme, it immediately removed the allegedly fraudulent LLC from its website.

Six weeks after removing the allegedly fraudulent LLC from its website, a group of investors in the LLC issued a demand letter to FI claiming that they lost their investment because of FI’s failure to perform the due diligence of the fraudulent LLC before including it on its website and certain violations of SEC

rules. The letter demanded return if their entire investment (in excess of $4 million) be returned immediately or a lawsuit would be filed.

RESOLUTION:

• Coverage was triggered under the E&O coverage.
• Vouch appointed specialized defense counsel.
• After the retention was paid by FI, Vouch directly paid defense counsel fees.  The matter ultimately settled for in excess of $3 million.
• Vouch paid the defense costs and settlement amount as covered loss within the aggregate limit of liability.

Personalized recommendations

Personalized recommendations tailor insurance policies to meet the specific needs and risk profiles of your fintech, based on detailed assessments of your operations, technology stack, market environment, and regulatory requirements, ensuring highly relevant and comprehensive coverage, addressing the exact risks you face. 

In short, we make the startup bet — growing the program alongside you as you scale from napkin-sketch idea to industry leader. It’s the right protections with the appropriate limits as you need them. Example:

INCIDENT:

Fintech, Inc. (FI) developed an AI-driven fraud detection product that helps loan officers detect fraudulent loan applications. The product is a unique feature built into FI’s loan origination system. FI’s CEO co-founder started the company after leaving a different company that offered a loan origination

system called Big Loans, Inc. (BLI).

One year after FI launched its business, BLI filed a complaint in federal court against FI and its co-founder and CEO alleging various violations of trade secret and intellectual property laws as well as breach of a non-disclosure agreement between the co-founder and CEO of FI and BLI.

RESOLUTION:

• Because the CEO was named in the suit, coverage was triggered for the CEO.
• Vouch appointed specialized defense counsel in IP matters to defend the CEO.
• After FI paid the retention, Vouch paid defense fees/costs in excess of $1.5M.
• Ultimately the matter settled with an agreement for FI to pay BLI a licensing fee.

Scalability of coverage

While most traditional insurance companies review policies on an annual basis (at best), Vouch proactively recommends regular business reviews at least every six months, reflecting how seriously we take the scalability of your coverage. 

Scalability of coverage allows your insurance policy to adapt and expand with the growth and evolving risk profile of your company, including increased coverage limits, new types of coverage, and adjusted terms as your business scales. This ensures future-proofing, providing continuous and adequate protection as you grow and it offers flexibility to adapt to new markets, products, or operational changes without needing to renegotiate new policies. 

The Vouch solution to fintech insurance

With our comprehensive fintech-focused policies, streamlined solutions that keep pace with your team’s needs, personalized recommendations for any changes you may face, and built-in policy scalability that Vouch offers, you’re equipped to make the most informed decisions about insurance… so you can stay focused on the harder questions you’re building for. 

Book a free intro meeting with a Vouch advisor or get a free quote now.