Sponsored content: Hiscox’s Bronwen Horn, head of management liability portfolio and financial institutions, discusses the challenging trading environment for fintechs, the opportunities and threats from AI and how to secure the insurance cover they need as they grow
Fintechs are not having an easy ride. Not only is the sector rife with competition from other fintech companies and more established financial institutions, but investor and lender appetites have been dampened given the high cost of capital.
Regulatory scrutiny is also leading to costly investigations into companies’ compliance with, and implementation of, new procedures.
Then, of course, there is the cyber threat driven in part by the growth of AI, adding to their risk challenges and increasing the need to buy tailored insurance protection.
Double-edged sword
For fintech businesses, AI can be a double-edged sword. On the positive side, this tool has become the backbone for many fintechs.
AI-powered algorithms are being used to develop new products, improve the customer experience, strengthen security structures and, in many instances, enhance pricing structures.
On the flip side, fintechs could be exposed if they are too reliant on AI models that could lead to security issues and a lack of algorithm transparency to their end client.
What if a fintech uses AI to complete a contract and it goes wrong, builds an AI model for a client and it doesn’t work to the agreed specification or provides advice on the viability of using a particular AI tool and that advice is found to be negligent?
Additionally, companies that overstate their use of AI in the solutions they provide could be accused of ‘AI-washing’ to gain a competitive advantage.
AI is also a tool for hackers conducting criminal activity and scams, as well as discovering more intelligent routes to access networks and steal data. The sensitive nature of the data held by fintech platforms and the reliance of businesses on those platforms mean fintechs have become prime targets for hackers.
A specialist approach
Given the AI challenge and other potential threats, it’s important for fintech companies to consider an insurer that understands their business and the wide spectrum of risks they face when looking for cover.
As a specialist insurer, Hiscox understands the risks fintechs face and offer a wide range of cover, from delay coverage, protection for intellectual property infringement and breach of contract cover for technology activities.
Brokers working closely with their clients to provide insurers, with a full understanding of the risks a fintech faces and the controls they have in place, will enable fintech companies to grow and innovate, secure in the knowledge that they have the insurance to protect their business if something goes wrong.
