#fintechFT will be taking a break in August. We’ll be back on Monday September 2 with a new editor, our London-based insurance correspondent Oliver Ralph
It’s a grim old world out there in commercial insurance, but cyber has been one of the few bright spots in recent years.
Growing worries about potential losses and fines from a hack have prompted companies large and small to seek cyber cover, which pays out for the cost of an attack.
According to Moody’s, demand for cyber insurance has increased at a rate of 26 per cent a year since 2015, with $2bn of premiums written in the US in 2018.
It is hard to maintain double-digit growth over the long term, but two developments this year suggest that demand will keep rising.
The first is a series of high-profile fines for data breaches. Last week credit bureau Equifax reached a settlement worth up to $800m with US authorities over a 2017 hack that compromised the data of 150m people. In the UK British Airways is facing a £183m fine for a data breach last year.
The question of whether fines are insurable is a thorny one. Moody’s says that: “In most jurisdictions, insurers are legally prohibited from indemnifying fines and regulatory penalties since doing so may undermine the intention of the law, which is to assure compliance rather than to treat non-compliance as a cost of doing business.”
Nevertheless, insurers expect the fines to focus the minds of companies that are worried about the costs of cyber attacks.
“I’d expect more buyers [of cyber insurance] on the back of the fines. It’s a good advert for the market,” says Andrew Horton, chief executive of Beazley which is one of the biggest cyber insurers.
More subtly, regulators may indirectly help to boost the market. They have been worried about so-called silent cyber exposure. That’s the risk that insurance companies may be unexpectedly on the hook for the costs of a cyber attack — not through standalone cyber policies, but through more conventional policies.
For example, a cyber attack that destroys a server may trigger a claim on a property insurance policy.
UK regulators voiced concern about the issue earlier this year. This month, Lloyd’s of London told insurers to make sure everyone knows where they stand.
“We’ve asked for all policy wordings to be clear on the extent of coverage for cyber losses,” says Caroline Dunn, head of class of business at Lloyd’s. “If there’s no coverage, we want there to be an exclusion.”
The issue will also be tested in the US courts. Mondelez is suing Zurich, after the insurance company refused to pay a claim on a property policy for costs related to the NotPetya cyber attack in 2017. Mondelez is arguing that damage to 1,700 of its servers and 24,000 laptops is physical damage that should be covered by property insurance.
The uncertainty over whether traditional policies will cover cyber incidents could lead to higher demand for standalone cyber insurance.
Helen Bourne, a London-based partner at law firm Clyde & Co, says: “It’s an education process to convince [insurance buyers] that it is worth getting affirmative cover rather than run the risk that a policy won’t pay out.”
The cyber insurers won’t have it all their own way. Balancing out that increase in demand is an influx of capital chasing the business as insurers have piled into the market. That growth in supply has helped to keep a lid on prices.
“Demand has slowed compared to the ‘hockey stick’ hopes,” says Tom Draper, a cyber insurance broker at Gallagher. “A lot of the low hanging fruit has gone. In the US, 173 insurers write cyber. The pie is growing but not by enough for 173 insurers.”
One to Watch: MoneyLion
New York-based MoneyLion, which has just raised $100m from big-name backers including Capital One, claims to be the “Netflix of finance”. If you’re wondering why financial services should resemble a video streaming app, you’re not alone but it’s an intriguing enough concept to probe deeper.
MoneyLion founder and chief executive Dee Choubey says that no one needs another bank. “The US has over 4,000 financial institutions that are deposit-taking, people don’t want another bank . . . what people really want is a community where they can use the power of that community to help them get better [financial services].”
MoneyLion is a six-year-old venture which bundles bank accounts, loans, savings, investment and insurance products in a single digital platform for its “members”. MoneyLion also offers rewards such as cinema tickets as well as cashback and “financial wellness products” to its 5m members.
Most of those members pay nothing in subscriptions, while others hand over $19.99 a month for “plus” membership which offers access to bigger loans and more tailored investment products. Members also have access to financial trivia quizzes, financial literacy training and data on financial markets.
Choubey says his firm makes money through interchange fees on its banking products, and commissions when people buy products from third parties. He says he’s wading through a “robust pipeline” of potential additions to the platform. The trick is to give members more choice without overwhelming them with too many similar offerings.
The $100m MoneyLion has just raised will be used for marketing and member engagement. Choubey is also planning to grow his workforce beyond his current 300, and is beginning to think about international expansion, with a bias to either Latin America or south east Asia, although for now the focus is on the US. Netflix, which is now at the ripe old age of 22, wasn’t built in a day either.
Number of the week: $1.4bn
The amount invested in insurtech companies in the second quarter of the year according to Willis Towers Watson, up from just $379m at the same stage last year. Over the past twelve months, over $5.7bn has poured into the sector.
Further fintech fascination
Trendwatch: Over to Japan, where the country is playing a bizarre game of catch up so it can become a beacon of the “cashless” world by 2027. Avid fintech followers will know that Japanese technology is behind all kinds of payments advances, including Sony’s FeliCa contactless payments system. Yet Japan itself is still very cash-heavy, prompting a major drive by the government and corporations to turn the tide. The FT’s team in Tokyo has chronicled that effort here.
Trendwatch II: The US banking market is set for yet another new entrant, this time in the unlikely form of Japanese online merchant Ratuken. The Wall Street Journal reports that Ratuken has asked regulators for permission to open a bank in Utah so it can give loans, credit cards and the like to customers of its US business. Other newcomers — or soon to be newcomers — to the US banking market include German digital bank N26 and Israel’s Pepper.
Regulators advance: China’s central bank has vowed to crack down on the “blind business expansion” of its financial holding companies, including the owners of fintech giants such as Ant Financial. Draft rules from the People’s Bank of China set minimum asset requirements and forbid non-financial business activities. Meanwhile, in the UK, a senior Bank of England official last week warned that banks might need to keep cash on hand to deal with social media fuelled bank runs.
Follow the money: Brazilian fintech Nubank, a Latin American digital bank with 10m customers, is headed for a $10bn valuation thanks to its latest $400m funding round. That would make it almost three times as valuable as Europe’s most highly valued fintech N26, and more expensive than the $7.6bn price tag that free stock trading specialist Robinbood achieved in its latest fundraising last week.
AOB: HSBC and RBC have piled into a tech solution to trade euro interest rate products electronically, joining JPMorgan Chase and Société Générale on the platform ** Payments fintech Revolut has hired Metro Bank’s finance director David Maclean for the same role ** Dana, an Indonesian fintech backed by Ant Financial, is on the hunt for new strategic investors