Fintech insurance market update 2023/24

Changes to the insurance cycle and how this impacts premiums

The Lloyd’s market continued its positive form from last year, writing £46.7bn (up from £39.2bn in 2022), with the combined ratio (gross premium received / gross claims paid) again improving to 91.9% from 93.5%^[1]. This is in spite of ongoing macroeconomic factors such as the ongoing Russian-Ukraine conflict and geopolitical tensions relating to the Middle East crisis, as well as increasing inflationary pressures both in the UK and abroad.

Increased competition

New entrants such as Casper, Spring Insure and Mosaic have contributed to making the financial institutions and fintech market increasingly competitive and in turn caused existing insurers to expand their appetites and diversify accordingly. As a result, we are beginning to see pricing reductions whilst coverage is being maintained or improved. As part of the insurance market cycle, prior years of large catastrophe losses and an unprecedented economic downturn caused a reduction in both appetite and capacity across the market. We are now seeing the other end of this cycle as new entrants come into the market driving competitive premiums and coverage improvements.

The fintech market

Whilst the financial technology sector sits within the broader financial institutions market, some but not all of the market easing qualities has followed through to the fintech sector. For example, the pool of fintech insurers remains relatively tight with Spring being the only core new insurer in the last 24 months. New entrants into the market has had an impact on premium’s with insurers looking to be more competitive.

Equally, the wider financial institutions market does not typically include cyber coverage within the same policy as Professional Indemnity (PI), Directors and Officers (D&O) and Crime, unlike the fintech policies we are used to placing. So where the pricing for PI, D&O and Crime coverage has dropped over the past 18 months, the Cyber coverage within fintech policies has kept premiums higher than the market average.

The Cyber market, until recently, continued to see a ‘hard’ market conditions, driven by increased ransomware attacks (2.39m instances of Cybercrime and 49,000 instances of fraud in 2022/23)^[2] and limited insurer appetite. As a result, the cyber coverage has prevented the larger rate drops that the wider financial institutions market has experienced.

Changes to premiums

Increased insurer competition has led to insurers being more open to premium reductions if the clients’ business has not drastically changed. However, financial technology firms are prone to significant growth which in turn can lead to increasing premiums. Insurers typically look at revenue growth, number of employees, new products and increasing PII records as core pricing metrics when providing a renewal quote and looking at the insured’s exposure. Where there’s been significant growth in these fields, premium will often follow in a similar trajectory.

Claims impact

From a claims perspective, we’ve seen a higher frequency of notifications over the past 2 years with greater regulatory enforcement and increased crime activity being a causing factor. Claims examples we have seen include:

• APP fraud
• Coding error causing issuing institution to settle into the incorrect accounts
• Denial of Service (DOS) attack triggering thousands of OTP SMS’s leading to a financial loss
• Fraudsters opening up credit facilities using fake ID’s leading to standard verification checks failing and a significant financial loss
• FCA issuing a supervisory notice informing the policyholder to cease carrying out certain regulated activates, the policy picking up the legal costs for the policyholder to represent themselves

Crime coverage within fintech policies is not always purchased by policyholders, despite this being a small additional cost to the premium. With crime claims on the rise, this is an area of insurance we recommend purchasing if not held already.

Notifying us of a circumstance as soon as possible is paramount as this allows both our claims and legal team along with the insurers to be kept fully up to date.

• New entrants into the market are driving competitive premiums and coverage improvements which shows a shift in the insurance cycle.
• With competition being more favourable to policyholders, now is a good opportunity to broaden coverage via increased limits, excess/retention reductions and the removal of certain exclusions. This helps to future proof the business and gives you an allowable margin of freedom should harder market conditions return, leading to increased premiums.
• With claims activity continuing to be prevalent, maintaining suitable coverage is key to prevent the unexpected happening in turbulent market conditions.