Exploring Markel's Decade-Long Fintech Insurance Journey

When Nick Rugg, Head of Fintech and Investment Management Insurance at Markel International, first encountered requests to insure fintech companies in 2015, the sector barely resembled today's multi-trillion-pound industry.

Back then, crowdfunding platforms and peer-to-peer lenders dominated what was still a niche market.

“We started to see these requests from brokers to insure fintech companies coming in,” Nick explains. “At the time, it was crowdfunders and peer-to-peer lenders that seemed to be the dominant sub-sectors of fintech.”

Markel International, the London-based specialty insurance arm of US-listed Markel Corporation, recognised an opportunity where others saw uncertainty. 

Based near London's Silicon Roundabout technology hub, the company was well positioned to observe the emerging sector's growth potential.

“We quite liked the risks,” Nick recalls. “The fundamentals of those types of companies were around investing and lending – the core exposures that we would insure on a day-to-day basis within our financial institutions' portfolio.”

However, existing insurance products failed to address fintech companies' unique risk profile. Traditional financial services policies did not cover technology exposures, while technology policies overlooked regulatory and financial risks.

“There wasn't a product out there that really catered to it,” Nick says. “We decided to put our heads together and think, because this was an industry that was going to grow. It needed to have a proper insurance policy.”

Markel assembled internal teams spanning cyber security, technology and financial services to develop a hybrid solution. After about a year of development, the company launched its fintech insurance product in 2016.

“We had these fintech companies – hybrid financial services and technology companies – so we needed to provide an insurance policy that was a hybrid technology and financial services insurance policy,” Nick explains.

The timing proved prescient. Between 2018 and 2021, historically low interest rates of 0.25% fuelled massive venture capital investment into fintech companies. Some startups achieved unicorn valuations worth over US$1bn within years of launching.

This rapid growth created new risk exposures that Markel had to navigate. Fast-scaling companies often struggle to maintain robust risk management procedures while expanding their operations and customer bases.

“That really changed the risk profile of fintech companies,” Nick notes. “Looking at fintech companies that are very stable to a fintech company that is growing so fast creates a lot of risk exposure, particularly around how the company is scaling its internal risk management procedures.”

Areas including anti-money laundering compliance, know-your-customer checks and IT infrastructure became pressure points for rapidly expanding fintechs. 

Markel's underwriters had to assess whether companies could maintain regulatory compliance while pursuing aggressive growth targets.

Regulatory shifts reshape risk profiles

Regulatory changes significantly altered fintech risk profiles during Markel's decade-long journey. The introduction of the Second Payment Services Directive (PSD2) in Europe and open banking regulations in the UK created new categories of regulated firms requiring insurance.

“The most significant for us was probably PSD2 when that came in,” Nick reveals. “Within the European Banking Authority guidelines for PSD2, there were certain insurance requirements that had to be met for these companies to get regulated.”

Markel worked directly with the Financial Conduct Authority in 2017 to ensure its policy met regulatory requirements for Account Information Service Providers and Payment Service Providers emerging from open banking reforms.

“We met with them and we chatted about these insurance requirements and whether it's something that the insurance industry could provide,” Nick explains. “We looked at our own fintech policy and made some changes to make sure it was compliant.”

This regulatory engagement proved crucial for Markel's positioning as a fintech insurance specialist.

By working with regulators to shape insurance requirements, the company established itself as an industry partner rather than simply a risk transfer mechanism.

Subsequent regulatory developments, including Consumer Duty requirements, the EU's Markets in Crypto-Assets Regulation (MiCA) and the Digital Operational Resilience Act, have continued reshaping fintech risk profiles.

“Regulation has definitely been at the forefront of our minds over the last 10 years,” Nick says. "We need to make sure that we've always got our finger on the pulse about what's changing, because we cover virtually all of the sub-sectors of the fintech industry.”

Claims patterns reveal sector vulnerabilities

The regulatory pressures that reshaped fintech risk profiles have translated into real-world claims for Markel's clients. Natalie Myhill, Claims Manager for Financial Institutions and Fintech at Markel International, has observed distinct patterns emerging across the sector over the past decade.

Regulatory investigations represent the largest category of claims, particularly targeting companies experiencing rapid growth periods that Markel identified as heightened risk exposures.

“A large proportion of claims we receive pertain to regulatory issues,” Natalie explains. “Regulators are taking a real interest in fintechs and we're increasingly seeing Section 165 document requests, Section 166 Skilled Persons Reviews and at times full investigations.”

Anti-money laundering compliance failures feature prominently in regulatory claims. Fast-growing fintechs often struggle to maintain adequate controls while scaling their customer onboarding processes and transaction monitoring systems.

Employment practices liability claims represent another growing area. “We're noticing an uptick in these claims brought before employment tribunals in the UK and internationally, where fintechs seem particularly impacted,” Natalie notes.

Discrimination, harassment and wrongful termination allegations have increased as fintech companies mature and employment relationships become more complex. The sector's rapid hiring during boom periods has created workforce management challenges.

What is more, fraud remains a persistent threat, with criminals targeting fintech companies and their customers through increasingly sophisticated methods. Social engineering attacks, internal fraud and Authorised Push Payment scams feature regularly in Markel's claims data.

“The fraudsters are becoming more sophisticated and utilising new techniques to get around security in place,” Natalie observes. “Our clients are not always able to prevent these frauds from taking place.”

Digital asset involvement has added further complexity to fraud claims over the past year. “We've seen an increase in fraud losses where the funds stolen are in digital currency,” Natalie says. “The issue for fintechs is that funds are much harder to trace and recover than conventional money, meaning losses can be bigger.”

Cyber threats reach unprecedented levels

The sophisticated fraud techniques Natalie describes represent one aspect of broader cybersecurity challenges facing fintech companies. Cyber threats have emerged as the sector's most pressing risk exposure, with Nick recalling that many companies initially declined cyber coverage when Markel first launched its fintech product in 2016.

“A lot of companies didn't buy cyber, so they would look at the professional indemnity and directors' and officers' cover under our policy and perhaps the crime, but they wouldn't buy the cyber,” he says.

Awareness has shifted dramatically following high-profile cyber attacks across multiple industries. “I would say now every single company that we ensure, regardless of size, buys cyber,” Nick continues.

Current cyber risk levels represent the highest threat environment Markel has observed during its fintech insurance journey, Nick says.

Fintech companies face particular vulnerability due to their digital-first business models and valuable customer data holdings. Payment processors, digital banks and cryptocurrency exchanges represent especially attractive targets for cyber criminals.

Markel has responded by incorporating comprehensive cyber coverage into its fintech policies and developing risk management tools to help clients improve their security posture.

Artificial intelligence and digital assets drive future risks

Beyond current cyber and fraud challenges, Nick identifies artificial intelligence and digital assets as the most transformative trends reshaping fintech risk profiles. 

Both technologies are being adopted simultaneously across the sector, creating unprecedented exposure combinations that extend beyond traditional claims patterns.

“Artificial intelligence and digital assets are probably two of the most significant and transformative trends that I think we've ever seen in the fintech sector,” Nick explains. “They both seem to be happening at the same time, which is quite interesting.”

AI adoption spans customer-facing applications and back-office functions, but regulatory frameworks remain underdeveloped. While the European Union has implemented AI regulations, the UK has yet to establish comprehensive oversight.

“It's obviously very early days with regards to artificial intelligence and some of those risk exposures that might arise from that,” Nick says. “Insurance policies will have to adapt to cater for some of those specific types of exposures that come out of AI.”

Digital assets have achieved mainstream adoption as institutional investors enter cryptocurrency markets. The underlying blockchain and decentralised finance technologies are being integrated into traditional financial services.

“We’re seeing lots of financial companies start to use this technology,” Nick notes. “We’re seeing mainstream financial companies start to launch their own stablecoins.”

Both trends create opportunities for new insurance products addressing novel risk exposures. Markel continues developing coverage solutions to support fintech companies navigating these technological transitions.

Partnership approach transforms insurance delivery

In 2023, Markel launched the second iteration of its fintech product, incorporating value-added services beyond traditional claims coverage. 

“We wanted to change the perception of what an insurance company does,” Nick explains. “We've talked about being a partner to the fintech industry, and yes, we're a partner for if you have a claim, we will pay it, but what else can we do to help these companies?”

Additional services include 24/7 business and legal helplines providing access to specialist lawyers, cyber risk management toolkits and contract drafting advice. 

Companies can access employment law guidance, grants and funding support, and research and development tax incentive advice.

“Having this there as part of your insurance policy, which comes absolutely free of charge, we think is really helpful,” Nick says. “If you've ever had to speak to a lawyer, they bill by the minute or hour, and those costs can ramp up quite quickly.”

The approach positions Markel as a risk management partner rather than solely a claims payer. Face-to-face meetings with clients build relationships and provide opportunities to discuss emerging risks and business developments.

“Try and meet with your insurer, build a relationship,” Nick advises fintech companies seeking coverage. “It builds trust and we do see ourselves as that long-term partner for these companies.”

Markel's territorial expansion has supported international fintech growth, with offices across Canada, Asia, Australia and Europe working with local regulators to ensure policy compliance. The company has engaged with regulators, including the Bank of Spain and the Bank of Lithuania, to adapt its offering for different jurisdictions.

"We work very closely with those local offices and we've worked with local regulators to make sure we can offer an insurance policy that is compliant with their own regulations," Nick explains.

After a decade supporting fintech companies through multiple market cycles, regulatory changes and technological developments, Markel has established itself as a specialist partner for an industry that continues to reshape financial services.

“We can be really proud of the fact that we did step forward initially when nobody else was stepping forward,” Nick concludes. “We've constantly tried to adapt and find ways to support an industry and hopefully we can continue to do that for the next 10 years and beyond.”