Insights

Despite common misconception, the insurance market for Fintech companies is relatively small. Given the limited carriers providing terms and the difficulty some companies can encounter when going to market, there are some steps executives can take in order to ease the process, maximize terms and reduce pricing.

SPACs have had an eventful and tumultuous year. The undeniable momentum that has recently quelled  will likely stabilize with time but the SPAC roller coaster has definitely entered its next apex with the obsession seemingly shifting from investors to regulators, plaintiff firms, and short sellers. As the overwhelming majority of SPACs appear to be underperforming, trading below their IPO price of $10, there has been considerable speculation over an impending wave of shareholder litigation.

Companies operating in the Fintech space are exposed to a wide range of risk and litigation. The mix of professional/financial services, tech platforms, proprietary software & algorithms, considerable capital required to fund operations, and cyber security challenges create a complex risk environment, requiring a carefully structured insurance program. For Fintech companies currently seeking proposals, we have a helpful guide here, that discusses tips and considerations when going to market.

While special purpose acquisition companies and more traditional IPOs may share some similarities, they are considerably different, both in their approach, statements and disclosures, and when it comes to structuring D&O coverage. While a newly public company often only has to worry about a single entity/transaction, SPACs are a series of transactions each requiring careful coverage coordination among 3 separate entities for all intents and purposes. When structuring a D&O insurance program, there are 3 distinct stages:

Directors and officers insurance is one of the most misunderstood insurance products. These policies are complex, can be written and structured a number of different ways, and contain policy language that varies greatly from insurer to insurer, so it's no wonder that even sophisticated executives are often confused by their terms. It’s also an insurance product that many organizations cannot afford to be without. Below we address some of the more basic misunderstandings policyholders often have when it comes to D&O insurance.

As Covid-19 and the faltering economy continue to create financial stress on companies across a myriad of sectors, bankruptcies are expected to rise sharply. Executive liability insurers are responding by underwriting cautiously and more aggressively. As a result, the c-suite is likely to encounter rising premiums and more restrictive terms. One such example…the application of an insolvency and/or creditor exclusion.

Never before have corporate transactions and executive decisions been so contested. Whether politically, financially or environmentally motived, we’re now living in an age of activism where everyone from shareholders to employees and consumers, are influencing decision making, resulting in missed business opportunities, reputational damage, executive changes and potential stock drops. And it’s affecting both public and private companies alike.

CONSUMER ACTIVISM

In addition to raising anxiety, the Coronavirus is also raising some unique workplace challenges and interesting legal questions in the context of employment liability. Can companies require their employees to travel to affected areas for work? Is a virus contracted at work considered a workplace injury? Can companies terminate employees that refuse to come to work or insist on working from home?

Economic slowdowns and recessions pose considerable challenges for companies. In addition to the potential for decreased revenues, increased costs, and declining valuations, companies will encounter additional turbulence as the potential for litigation, occupational fraud and cyber-attacks all increase. In an effort to reduce costs, many companies may decide to reduce or eliminate insurance coverage, however this approach may adversely impact an organization’s total cost of risk.

Few social media campaigns, if any, have generated the momentum achieved by the #MeToo movement. With reports estimating a 10-20% increase in sexual misconduct claims since its inception, its success at raising awareness and encouraging victims to come forward is undeniable.