IBC: How has the fintech sector in Canada grown over the past year?
Cindy Manek: We’re seeing continued momentum in Canadian fintech investment. The start of the pandemic brought a lot of uncertainty, which in turn hampered investment across all sectors. As the realities of the pandemic set in, and when traditional brick-and-mortar stores closed up shop, it became apparent that there was no better time than now to present alternative ways for Canadian consumers and companies to revisit how they approach their financial services needs. In the last quarter of 2020, it’s estimated that the Canadian fintech sector saw investment of $438 million.
The key development in the space is simple: Canadian consumers and businesses want alternative ways to digest financial services. This has spawned a growing Canadian fintech sector that touches on all segments of financial services: payment, lending, wealth management, banking and more. Markel Canada is thrilled to support these companies and their insurance needs with our product designed specifically for the fintech industry.
IBC: How has the pandemic-prompted shift to remote work impacted the fintech sector?
CM: Consumers and businesses want easier and more independent ways to transact in the work-from-home environment. We’re largely unable to have face-to-face meetings, and there is undoubtedly growing fatigue for individuals to take on yet another Zoom meeting. Naturally, this has led consumers to seek options of managing their personal or business financial services needs independently.
A great example of this is the growth in the number of fintech companies that are targeting the investment management and financial planning space. The pandemic has spurred younger investors to take a greater interest in their personal finances, as they see a great opportunity to take advantage of stock market volatility. Fintech companies within this sector are increasingly displacing traditional financial planners; we’re pleased to support these companies by offering an insurance product that is catered to their specific needs. We see the pandemic and the shift to remote work as having accelerated the growth of the fintech sector.
IBC: While fintech use is up among Canadian consumers and businesses, many remain hesitant to replace more traditional financial service providers. Why do you think that is?
CM: While we’ve seen significant growth in the number of Canadians using fintech services, there is still room for further adoption of fintech services within Canada. It is estimated that Canadians’ adoption of rate of fintech services – 54% of consumers – still lags the global adoption rate of fintech services, at 64% of consumers.
We expect the adoption rate of fintech services to increase with time and for services to improve as Canadian consumers learn more and try out fintech services. The largest barriers facing the industry and its growth are primarily rooted in a lack of awareness in how fintech companies work and the value-add they can offer, as well as earning the trust of Canadian consumers and businesses.
There is a degree of doubt amongst consumers as it relates to whether their finances are in safe hands with a company that may not have physical location, or if their process is entirely virtual. Fintech companies need to demonstrate to Canadians that their offering is reliable, safe and trustworthy. Canadians are concerned that a fintech company they engage may face a service disruption or that their assets may not be in safe hands. Markel’s comprehensive fintech product covers core insurance coverages like E&O, theft and cyber, and provides a safety net to fintech companies that will protect them both financially and operationally in the event of a service disruption.
IBC: What are the main risks a fintech company might face? What makes insurance a necessary expense for these companies?
CM: First, insurance will offer fintech companies balance sheet protection; these companies need cash resources to fuel their growth and execute their business plans. Put simply, the cost of insurance is more predictable than the cost of an unforeseen service disruption or lawsuit. An increase in the frequency of companies in this space buying insurance appropriately reflects this. Fintech companies are recognizing insurance for being the great risk transfer tool that it is.
What’s more important than simply buying insurance is ensuring these companies are buying the right insurance. Because of the nature of fintech companies, they need to ensure that they are covered for their technology exposures and their financial expos-ures. Most insurance policies will cover one or the other but not both. Gaps in coverage can lead to companies finding themselves uninsured for potentially very serious situations; I would encourage all insurance brokers to review their clients’ insurance policies to ensure they have the breadth of cover their clients need.
There’s a plethora of risks that fintech companies face, but we see the largest one as being a cyberattack or security breach. A security breach or cyberattack can materialize in a multitude of ways; an alarming trend across all industry classes is the growth of ransomware attacks. In our experience, fintech companies typically have better control and security protocols than most, but they are by no means immune. A ransomware attack can disable them from accessing their systems, which in turn may prevent them from running their business. We’ve also seen some instances, namely within fintech companies operating in the payment processing space, where threat actors seek to identify a vulnerability or glitch in a fintech company’s operation that allows them to steal assets from the company.
A commonality of fintech companies is that they all possess a great deal of data. Much of this data can be highly sensitive, from social insurance numbers to banking information to personal addresses – the list goes on. A security breach at a fintech company can trigger a requirement to notify consumers and businesses of the loss of data and may even lead to a lawsuit from the consumers and businesses whose data may have been compromised.
Unrelated to the cyber threats is the risk to directors and officers [D&O] of fintech companies. The founders of these companies may be raising millions of dollars from venture capital firms, which rely on the representations they make. When the business does not go as planned, investors may opt to launch a lawsuit against the directors and officers of the company.
Finally, perhaps the most fundamental risk to the business is the risk of the fintech company not being able to fulfill their service obligations to their clients – i.e. their E&O exposure. This exposure will vary a great deal depending on the facet of financial services that the fintech company serves.
IBC: Markel has quickly become a leading insurer for the fintech industry. Why do you think that is?
CM: The fintech sector clutches two industry segments that are typically separated on the underwriting floor of insurers: finan-cial institutions [FI] and technology. An FI underwriter may not be adept at underwriting the technology risk, while a technology underwriter may not be adept at underwriting the financial-related E&O risk of the company. We’re realizing great success with this niche product because we’ve built out an underwriting skill set by collaborating across the FI and technology underwriting divisions to serve this sector.
We’ve built out a truly innovative product that comprises four core insurance needs of a fintech company: E&O, cyber, crime and D&O. Fintech companies, which value simplification and efficiencies more than most, appreciate that they only have one application to complete in order to attain four necessary coverages.
While no company ever hopes to experience an incident that triggers their insurance, we’re extremely proud of the claims service offering that we’ve established. Markel has built out partnerships with leading law firms and cybersecurity incident response firms to be able to quickly and competently respond to claims when they emerge. We appreciate how fast response times are crucial to mitigating loss and minimizing reputational damage. The reputation of a company is key to its growth aspirations, so being able to promptly rectify a potentially damaging situation is an important facet of a fintech company’s risk management program. We’ve partnered with highly reputable and capable claims service partners that are at the service of our fintech clients when they need them.
Cindy Manek, senior underwriter
Year founded: 1966 (as specialty MGA Elliott Special Risks, which was acquired in 2009 by Markel International)
Headquarters: Toronto, ON
Leadership: David Crozier, president and managing director
- Tell us about Markel Canada. What do you do?
Cindy Manek: Markel Canada is a leading P&C insurer that operates as a syndicate of Lloyd’s. We are a leader in liability, with developing specialty sectors and user-friendly online business solutions. Our three Canadian offices house market-leading underwriters who work with clients to offer optimal risk management solutions, while our dedicated claims team ensures each claim is handled promptly, professionally and fairly. Our parent company, Markel International, is a subsidiary of Markel Corporation, a US-based holding company for insurance and investment operations around the world.
In my role as senior underwriter with Markel’s Professional and Financial Risks [PFR] team, I manage PFR, cyber and fintech accounts nationally, while synonymously expanding Markel’s PFR footprint through underwriting knowledge and strong stakeholder engagement. I bring close to eight years of technology underwriting experience to the team and have worked at two leading insurers prior to joining Markel in 2019.
I’ve aided in the development of Markel’s fintech product through strong collaboration with our team in the UK. I pride myself on being a team player and working with humility and integrity, which I believe has allowed us to be agile in our creation and implementation of fintech while maintaining benevolent broker relations across Canada.
- What’s your key area of focus in the insurtech ecosystem?
CM: Outside of our Markel Connect online portal that allows brokers to quote, bind and issue policies online in minutes, our Professional and Financial Risks team has introduced a complex, niche product that hit the Canadian landscape in 2020: fintech. Markel’s fintech product packages professional liability, directors & officers liability, theft and cyber liability with the deep understanding of financial institutions’ varied technology risks and how to manage and mitigate them.
Whether you are an established fintech company or a new startup, the right insurance and crisis management plan can mean the difference between the survival of your fintech business or financial disaster and reputational ruin. This is where Markel’s expert underwriting and product services go further than our competitors.
- How are you using your fintech product to fix pain points in the insurance ecosystem?
CM: As Markel continues to grow its robust sector offerings, we grow strong relationships with our service consultants and providers that offer our policyholders bespoke risk management services. With our fintech product, we offer services in the cyberspace such as breach response, incident management, credit monitoring, public relations services and more. These rapid, integrated solutions grant access to leading lawyers and experts should a cyber threat develop.
- How does your product benefit the broker channel?
CM: Aside from being one of the only players in this niche sector, our fintech product wording offers Canadian capacity, which other insurers do not. Local capacity means your dealings are strictly Canadian, with compliance and coverages adhering to Canada’s jurisdictional laws and regulations. Our specialist underwriting team has developed a consistent coverage wording with no gaps. Our value-added cyber services make selling clients coverage easy – our strengths speak for themselves.
- What product innovations are you most excited about for the future?
CM: The growing fintech sector and the chance for our team to be the proudly Canadian forefront of this innovative coverage.