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Will your insurance cover you when you need it?
For payment fintech companies, obtaining business insurance, such as professional indemnity coverage, is crucial for mitigating the unique risks associated with financial transactions and technology-driven operations. This insurance provides liability protection against claims of negligence or errors in services, cybersecurity threats through coverage for data breaches and cyber incidents, ensures regulatory compliance, and financially protects against fraud, payment disputes, and operational disruptions. Moreover, having adequate insurance coverage can facilitate partnerships and business relationships by demonstrating the company's commitment to managing risks effectively, ultimately safeguarding its financial stability, reputation, and long-term viability in a competitive and regulated industry landscape.
Background
This B2B FinTech provides a comprehensive range of finance, treasury, and payment solutions to corporate and other financial institutions. The firm was about to renew its professional indemnity insurance coverage and needed some support in ensuring adequate coverage, while optimising its insurance costs.
Challenges Faced
As the firm’s insurance was up to renewal, the organisation faced multiple challenges:
Risk coverage: Payment fintech companies face industry-specific risks that are not always adequately addressed by standard insurance policies. These risks could include regulatory changes, compliance requirements, technological advancements, and evolving cybersecurity threats. Tailoring insurance coverage to address these specific risks is essential for comprehensive protection.
Coverage Limits and Exclusions: Understanding the coverage limits and exclusions of insurance policies is crucial to ensure that the company's needs are adequately met. It's essential to carefully review policy terms, conditions, and exclusions to identify any gaps in coverage and assess whether additional endorsements or riders are necessary to fill those gaps.
Claims Process and Support: Evaluating the claims process and the level of support provided by insurance carriers is important to ensure prompt and efficient claims resolution in the event of a covered loss. A responsive claims handling process and dedicated support from the insurer can help minimise disruptions to business operations and expedite recovery efforts.
Policy Review and Adjustment: Insurance needs evolve over time, and it's important to regularly review and adjust insurance coverage to reflect changes in the business, industry trends, regulatory requirements, and emerging risks. Conducting periodic policy reviews with an insurance advisor can help ensure that coverage remains adequate and aligned with the company's evolving needs and objectives.
Insurance Premium Costs: Understanding insurance premium costs is crucial for budgetary planning and ensuring cost-effectiveness. Payment fintech companies, like any business, need to balance the level of coverage they require with the affordability of insurance premiums. Factors that can influence premium costs include the extent of coverage, the perceived level of risk, the company's claims history, industry trends, and the financial stability of the insurer. In addition, consider how much premium you pay as a % of revenues; in the context of this firm, insurance represented up to 10% of revenues which was not sustainable in the medium term as the company expanded.
Complexity of Selecting the Right Coverage: The complexity of selecting the right insurance coverage can pose a significant challenge for payment fintech companies, given the myriad of risks they face and the specialised nature of their operations. Sorting through various insurance options, understanding policy terms and conditions, and determining the optimal level of coverage is daunting tasks. This includes understanding the type of insurance you would need and what is covered; for example a professional indemnity insurance does not provide coverage for your employees or for business travelling.
Solutions Implemented
The firm implemented a multi-faceted strategy to restructure and optimise its insurance coverage:
Risk Assessment and Register: The firm rolled out a comprehensive risk register, supported by a detailed risk assessment, outlining the type of risks it faced, the root-cause of such risk, how they would materialise and their potential impacts. This was a critical task to ensure all the relevant risks were covered and understand whether any of these risks would fall within the coverage limits and exclusions.
Risk and Control Management Practices: Implementing robust risk management practices is essential to complement insurance coverage and reduce the likelihood and severity of potential losses. This may include cybersecurity measures, disaster recovery planning, employee training, and ongoing monitoring of regulatory compliance. In that context, some specific actions such as increased technological resiliency through targeted system/data redundancy and back-ups could be considered to reduce the insurance premiums.
Customised Insurance Policies: It was necessary to work with insurance advisors or brokers specialising in the fintech industry to customise insurance policies that address specific risks and provide comprehensive coverage. Tailoring policies to the company's needs and risk profile helped to ensure that coverage limits, exclusions, and endorsements are aligned with its risk profile and operational requirements.
Regular Policy Reviews: In general, it is good practice to establish a schedule for regular policy reviews with insurance advisors to assess the adequacy of coverage, review policy terms and conditions, and identify any gaps or changes needed. These reviews should be conducted periodically, and at least before renewal, to keep pace with evolving business needs, industry trends, regulatory requirements, emerging risks, and costs. It is also necessary to pay particular attention to the policy structure as the coverage of specific risks, such operational disruption, could be either cover under a general professional indemnity policy and/or a specific cyber policy. As we found out, this can also change from year to the next with the same insurance provider.
Cost-effective Coverage Strategies: It is critical to implement cost-effective coverage strategies to manage insurance premium costs while maintaining adequate protection. Explore options such as risk mitigation measures, per above example, bundling multiple policies with the same insurer, and negotiating premium rates based on the company's risk profile and claims history. It is also necessary to consider how to assess and optimise the maximum liability to cover under a policy, be it under professional indemnity and/or cyber coverage.
Outcomes Achieved
Coverage: The initial review against the risk register and assessment identified that some major risks were not adequately covered, while existing coverage included risks not relevant for the firm. In addition, it transpired that some of root-causes and type of events identified through the risk assessment fell within the coverage limits and exclusions. After in-depth review with the insurance intermediaries, the firm completely overhauled its insurance coverage and ensured all its major risks were 100% covered.
Costs: The firm managed to reduce its insurance premium by close to 40% year-on-year by reviewing how its maximum liability was assessed and not paying for insurance coverage it did not need. In addition, the new insurance structure would make the marginal acquisition cost of new clients much lower.
Additional Resources
The insurance renewal process for our payment fintech company presented numerous challenges, including ensuring adequate risk coverage, managing policy limits and exclusions, navigating the claims process, and balancing insurance costs with comprehensive protection. Through a strategic and multi-faceted approach, including a comprehensive risk review and customised insurance policies, we successfully addressed these challenges and optimised the firm’s insurance coverage, while reducing its costs.
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