D&O Insurance for FinTech Firms
If you’re a FinTech Startup you may be looking for D&O Insurance for FinTech Firms and other forms of business insurance and are shocked at the cost and difficulty of obtaining coverage.
In this video and post, I’m going to explain what’s going on and how to find the right protection and the right price, coming right up
Hi, I’m Gordon Coyle and in this video and post, we’re going to focus on business insurance – concentrating on D&O cover for firms in the fintech space.
If you have a question or issue I didn’t specifically cover here, please let me know.
Okay, D&O and other forms of insurance for FinTechs. What is it, why do you need it and why is it so expensive?
D&O stands for directors and officers liability insurance.
I like to call it personal net worth insurance because what this coverage does is protect the decision makers in your firm – directors, officers, partners, and other leaders from lawsuits that can arise alleging wrongful acts, decisions, errors, statements, and misstatements in running your business.
The worst part is that these lawsuits often name the decision maker PERSONALLY for their actions, putting them at risk.
Why do you need it?
First, these types of suits are expensive to defend against.
Even if you or another leader in your firm has done nothing wrong, the defense costs are extremely high – likely a minimum of $100,000. Paying for defense out of pocket can destroy your startup’s funding and future.
Second, investors, and advisors will refuse to invest or sit on your board without this protection because these lawsuits put their personal assets at risk.
Why is D&O and other coverage forms for FinTechs so expensive?
There are several reasons and here are several:
- Keep in mind that insurance like other products is based on supply and demand.
With only a handful of insurers writing insurance in the FinTech space there is limited capacity in the marketplace and increasing demand, so prices tend to be high.
- Broad Risk Profile – Fintechs typically encompass multiple risk profiles in one firm.
There are broad financial institution risks, technology risks, and cyber risks all within one company which presents unique and challenging risks to underwriters.
- When you combine this challenging risk profile with money, other people’s money you may begin to understand why there is a limited market for fintech and why pricing is what it is.
What can a Fintech startup expect to pay for insurance?
That’s a tough question to answer, because of the different types of firms starting up right now, but it is certainly a multiple of what traditional tech startups are paying.
Broadly speaking, in my experience you’re looking at a range of anywhere between $35,000 and $100,000 in premium for a package at a $1M limit.
If you’re in the crypto/Defi space expect to pay even more!
What coverage forms should FinTechs be looking at?
I’ve already mentioned D&O Insurance and why, so the next most important form of coverage is going to be Professional Liability, often called E&O insurance and this is going to be a tailored policy form to address both the technology E&O risk issues as well as the financial institution risk issues.
Next is Cyber Insurance to cover the first and third-party liability issues that cyber risk presents.
Then you’ve got traditional business insurance policies such as general liability contained in a BOP or business owners policy, workers compensation, umbrella, and auto insurance.
We’re also going to recommend adding EPLI or employment practice liability insurance to round out your D&O policy.
I’ve got a video on EPLI which you can view here: Employment Practice Liability Insurance (EPLI) – What Is It and Why You Need It
Lastly, there may be specific Commercial Crime Insurance and Intellectual Property exposures to be addressed as well.
How do FinTechs get insurance?
There are a few options for purchasing insurance for FinTechs – the first is going online and using an insur-tech (a fintech type of firm) to get coverage.
The advantage of doing this is that the process is typically fast and easy. A minimum level of human interaction, applications, or questions.
The downside of this, in my opinion, is that fast and easy may not address your specific risk issues.
It may also not customize your policy forms to address the coverage you need the most, and last, it typically is going to give you one option; you’re not seeing what the entire marketplace has to offer.
The second option is to work with a specialty broker like me who focuses on technology, financial service firms, and fintech.
We represent a broad cross-section of the insurance marketplace, we can tailor a coverage package to your specific needs, and we act as your advocate when and if things go wrong.
And often, claims do happen so advocacy becomes important to give you peace of mind.
The other thing that a skilled broker like me can do is create competition within the market between the underwriters that are writing fintech insurance.
You’re not going to get that when engaging an insurtech that only represents their own insurer.
How do you get started?
Getting started is simple – let’s have a conversation.
No pressure, no sales gimmicks – just a discussion so we can connect and see if you’d like to do business with us.
From there we’ll direct you to our smart form portal so we can do some data gathering, then we go out to the market and work with the leading underwriters in the FinTech space.
Once we’ve got some traction we’ll likely host an underwriting call to get all interested underwriters on a conference call so they can ask you questions and you can provide feedback.
This is an opportunity for you and your leadership to shine and give underwriters the comfort level to know that you’ve got risk issues under control so we wrap up underwriting negotiations.
Have other questions or thoughts?
Why not book some time on my calendar for a conversation.
As I said, this is just a conversation, not a sales call -You’re not going to get any high pressure from me as you start your research into business insurance for your fintech.