CFC warns of ‘grey areas’ in fintech exposures – Insurtech – Insurance News
Cyber specialist CFC warns that fintechs are unlikely to find all their exposures covered in a single policy, as traditional coverage often does not address technology failure, subcontractor liability or intellectual property rights violations.
Traditional exposure of professional liability, management liability and crime is still present, while the integration of technology creates new threats and increased privacy concerns.
This leads to “grey areas” in insurance placements.
“There will be finger pointing between insurers over the proximate cause of loss – did it come from financial or technology services?” a new guide prepared by the CFC said, adding that insureds may be required to pay more deductibles and risk having no coverage.
The CFC says fintechs often rely on third-party contractors, which creates an additional liability risk related to negligent advice and failures in customer service. High transaction volumes and the use of innovative new technology make fintechs vulnerable.
Theft of funds, cyber incidents and professional liability are key exposures.
“Fintech companies have a unique combination of exposures that don’t fit the typical financial institution,” said CFC Financial Institutions Practice Leader Neil Beaton.
The CFC says many insurers have “chosen to avoid this new area of the market all together”, and technical errors and omissions (E&O) insurers are unlikely to cover exposures from the provision of products for financial services, advice or provide comprehensive cover for regulatory investigations.
Here are the main fintech liability threats listed by the CFC:
Theft of funds
High volumes of payments, transactions and customer accounts, as well as the growth and implementation of new technology make fintechs vulnerable to theft committed by an employee or external party.
Cyber event
Network security, data breaches or a denial of service attack, as well as the damage and remediation costs following these events are major concerns.
Academic responsibility
Negligent advice and customer service failures, particularly a risk as fintechs use innovative product distribution models and/or rely on third-party providers, adding additional liability risk due to third-party negligence.
Legislative environment
Fintechs must implement appropriate and satisfactory risk management systems and consider regulations in multiple territories if they operate internationally.
Technology failure
Technology failure can lead to loss of income or lack of access to services.
Violation of IP
In a sector with IP at the core of its value, litigation will be common. Most traditional FI policies will exclude cover for IP infringement – an important fintech cover.
The subcontractor’s vicarious liability
Fintechs may be liable for any errors or omissions caused by suppliers.
Download the guide here.
