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Fintech insurance demand fosters cross-class collaboration

Increasing demand for a comprehensive insurance solution for fintech companies is pushing the London market to break down the traditional silos built around lines of business.

Brokers and underwriters told this publication there was huge opportunity to serve this new breed of insurance buyer, if carriers can find a way to work across insurance classes.

Historically, fintech companies looking for insurance have had to buy separate policies for each of their exposures, which include financial institutions' (FI) directors' and officers' (D&O) insurance, crime and employers' liability (EL), tech errors and omissions (E&O) and cyber.

However, this can create wide coverage gaps or protection overlaps, which can lead to disputes between insurers when it comes to making a claim.

Finding suitable products for a fintech company can be "a bit of a logistical nightmare", explained Jean-Luc Crowther, account executive at fintech-specialist broker Digital Risks.

"Most traditional FI policies will exclude some fundamental tech risks, and vice versa in the traditional tech E&O market."

For example, a peer-to-peer lender or a crowdfunding platform would need coverage for arranging investments as typically provided under a FI policy, but would also have tech liability exposure, he explained.

There are now a handful of Lloyd's markets devising policies for the fintech market, or brokers are working with underwriters to understand these fintech-specific exposures, Crowther said, but "there still aren't enough insurers offering capacity".

Will Wright, a partner at broker Paragon, said breaking down the divides between classes of business has been "a long time coming" in terms of providing insurance to fintech companies, but momentum is starting to build.

"The underwriting community knows the need is there but because it straddles separate reinsurance treaties, separate divisions and sometimes separate P&Ls, it can be difficult [for departments] to collaborate," he said.

Paragon has drawn up its own proprietary wording which blends D&O, crime, EL, cyber, tech and FI E&O into one product, with flexible limits for each exposure. The firm claims it is the first time in the London market that a combined proprietary wording has been created for fintech companies by a broker.

"The idea is to make the coverage seamless," explained Wright. "It's the same market handling all the coverages for all claims, so it just avoids any issues in gaps of cover, or any issues around notification."

Wright said there had been particular demand from fintech companies preparing an initial coin offering.

"We have placed accounts where £50mn ($69mn) of capacity was quoted, and £25mn of capacity was found, so we know people support it and want to be involved with it," Wright said.

He added that up to eight Lloyd's insurers had supported the Paragon wording in the past.

"The capacity is there, but it requires a willingness from underwriters and a technological understanding on the part of the brokers," he said.

Markel International, meanwhile, has developed a product which is the collaborative effort of its FI and cyber teams.

First launched in March 2016, the policy offers D&O, professional indemnity, crime, cyber and crisis management cover in one package, with a maximum £10mn limit for each exposure.

"In London we have a booming fintech industry right on our doorstep and there was no insurance product out there that was tailored to its needs," said Nick Rugg, an FI underwriter at Markel International. "The product brings together four classes, so it's not a trivial achievement but there were no reinsurance issues."

Rugg said even though the term "fintech" can cover a broad array of companies, the majority of buyers still had FI exposure as the underlying risk with an additional tech liability element.

The claims picture is therefore very similar to a traditional FI book, he added.

In Markel's experience, fintech insureds - particularly start-up companies - will typically buy up to a £5mn limit, but the larger "unicorn" fintech firms may buy more.

In terms of opportunity, Markel International's head of FI Martin McCarron said the fintech industry was growing at "an exponential rate".

He said: "We want to insure start-up companies from the beginning and be there for them as they grow."

Digital Risks' Crowther added that the barriers to entry for fintech start-ups were lower than ever, especially with the introduction of regulatory sandboxes for firms to experiment.

The European Banking Authority has also mandated a minimum amount of professional indemnity insurance "open banking" fintech firms are required to buy.

More widely, given that every financial institution is implementing more technology into their day-to-day operations, "the opportunity [for fintech insurance] could be as big as the current FI market", he said.


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