The financial world is changing fast, and with it, the risks tied to operating in a digital space are growing. Fintechs (financial technology companies) and NBFCs (non-banking financial companies) are at the heart of this shift, using technology to offer new financial services and reach underserved markets. But as these businesses rely more on digital platforms, they face a rising threat of cyberattacks. This has led to a surge in demand for cyber insurance among fintechs and NBFCs, a trend that’s reshaping how these companies manage risk. In this blog post, we’ll break down why this is happening, what cyber insurance covers, and how it’s becoming a must-have for these businesses.
Why Are Fintechs and NBFCs Turning to Cyber Insurance?
The Growing Cyber Threat Landscape
Fintechs and NBFCs handle massive amounts of sensitive data, from customer financial records to personal details. This makes them prime targets for cybercriminals. A 2024 report noted that cyberattacks on the financial sector jumped by 238% globally between February and April 2020, with 80% of financial institutions reporting an increase in attacks. More recently, a 2023 report highlighted that the finance and insurance sector was the second most targeted by cybercriminals since 2018.
Ransomware, data breaches, phishing, and social engineering attacks are some of the top threats. For example, ransomware attacks, where hackers lock systems and demand payment, have become more sophisticated. They now often involve “double extortion,” where attackers steal data before encrypting it, threatening to leak it unless a ransom is paid. The cost of these attacks is staggering—global ransomware damages are projected to hit $265 billion annually by 2031.
Fintechs, with their tech-first approach, are especially vulnerable. They rely on cloud services, APIs, and digital platforms, which create more entry points for hackers. NBFCs, often called shadow banks, also face risks because they handle large volumes of financial data without the same regulatory oversight as traditional banks. This makes cyber insurance a critical tool to protect against financial and reputational damage.
Regulatory Pressure and Compliance Needs
Another big driver of cyber insurance adoption is the push for stricter regulations. Governments worldwide are introducing tougher data protection laws, like the Digital Personal Data Protection Act (DPDP) in India and the General Data Protection Regulation (GDPR) in Europe. These laws hold companies accountable for safeguarding customer data, with hefty fines for non-compliance. For instance, GDPR requires businesses to report data breaches within 72 hours, and violations can lead to fines of up to 4% of annual global revenue.
In India, the Reserve Bank of India (RBI) issued guidelines in November 2023, urging NBFCs to strengthen their cybersecurity frameworks. While cyber insurance isn’t mandatory yet, the RBI emphasized the need for risk mitigation strategies, including insurance coverage, to manage cyber risks. This regulatory focus is pushing fintechs and NBFCs to secure cyber insurance to cover potential legal and regulatory costs.
Rising Costs of Cyber Incidents
Cyberattacks are expensive. According to IBM, the average cost of a data breach in 2023 was $4.45 million, a record high. For fintechs and NBFCs, these costs come from multiple sources:
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Direct financial losses: Money stolen through fraud or ransom payments.
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Operational downtime: Business interruptions from ransomware or system failures.
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Legal and regulatory fines: Penalties for failing to protect customer data.
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Reputational damage: Loss of customer trust, which can hurt long-term growth.
For example, a major cyberattack on a payment system could cost the global economy billions, as estimated by Lloyd’s of London. Cyber insurance helps cover these costs, making it a smart investment for businesses that can’t afford to absorb such losses.
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What Does Cyber Insurance Cover?
Cyber insurance is designed to protect businesses from the financial fallout of cyber incidents. Policies vary, but they typically cover three main areas: event management, financial loss, and liability. Here’s a closer look at what’s included:
1. Event Management
When a cyberattack happens, immediate action is needed. Cyber insurance often covers:
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Digital forensics: Investigating the breach to understand how it happened.
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Data breach notifications: Informing customers about a breach, as required by law.
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Public relations: Managing communication to protect the company’s reputation.
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Legal consultations: Getting expert advice to navigate regulatory requirements.
For fintechs, where real-time services like digital payments are critical, quick response is essential to minimize damage.
2. Financial Loss
Cyberattacks can disrupt operations, leading to lost income. Cyber insurance can cover:
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Business interruption: Compensation for revenue lost during downtime.
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Ransomware payments: Costs of negotiating and paying ransoms (though this is controversial).
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Data restoration: Expenses to recover or rebuild compromised systems.
For NBFCs, which often rely on third-party vendors, supply chain attacks are a growing concern. Insurance can help cover losses from these incidents.
3. Liability
If a cyberattack leads to customer data being compromised, companies can face lawsuits or regulatory penalties. Cyber insurance may cover:
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Legal defense costs: Fees for fighting lawsuits or regulatory actions.
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Fines and penalties: Payments for violating data protection laws.
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Class action settlements: Compensation for affected customers.
Given the sensitive nature of financial data handled by fintechs and NBFCs, liability coverage is a key reason for the surge in cyber insurance demand.
Tailored Coverage for Fintechs and NBFCs
Not all cyber insurance policies are the same. Fintechs and NBFCs need coverage tailored to their unique risks, such as:
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Financial transaction fraud: Protection against losses from hacked payment systems.
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Token theft: Coverage for stolen digital assets, especially in decentralized finance (DeFi).
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Smart contract vulnerabilities: Safeguards for flaws in blockchain-based systems.
Policies should also address regulatory compliance, as fintechs and NBFCs often operate under strict financial regulations. Working with a broker who understands these industries can help ensure the right coverage.
The Surge in Cyber Insurance: By the Numbers
The cyber insurance market is growing fast, driven by the needs of fintechs and NBFCs. Here are some key stats:
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The global cyber insurance market was worth $15.3 billion in 2024 and is expected to reach $16.3 billion in 2025, with projections of $30 billion by 2030.
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In India, the cyber insurance market is estimated at Rs 300-400 crore (about $36-48 million) and growing at 50% year-on-year.
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Fintechs report 41% of their insurance claims as cyber-related, compared to just 5% for traditional banks.
This growth shows how critical cyber insurance has become for businesses in the financial sector.
Why Fintechs and NBFCs Are More Vulnerable
Fintechs and NBFCs face unique risks that make cyber insurance a priority:
1. Tech-Centric Operations
Fintechs rely on digital platforms, cloud computing, and APIs to deliver services like online loans or digital wallets. While this drives innovation, it also creates vulnerabilities. For example, 24% of fintech cyber claims come from social engineering attacks, compared to 10% for traditional financial institutions. These attacks trick employees or customers into sharing sensitive information, exploiting human error.
2. Handling Sensitive Data
Both fintechs and NBFCs manage vast amounts of financial and personal data, making them attractive targets. A single breach can expose customer bank details, credit scores, or identity information, leading to fraud or identity theft. The 73% increase in identity fraud cases in fintechs from 2021 to 2023 underscores this risk.
3. Supply Chain Risks
NBFCs often work with third-party vendors, which can be weak links. Supply chain attacks, where hackers target vendors to access a company’s network, are on the rise. In 2023, software supply chain attacks cost businesses $45.8 billion globally. Cyber insurance can help cover losses from these incidents.
4. Regulatory Scrutiny
As regulators tighten rules, fintechs and NBFCs face pressure to comply. Non-compliance can lead to fines, legal action, or loss of operating licenses. Cyber insurance provides a safety net to manage these risks.
How Cyber Insurance Benefits Fintechs and NBFCs
Financial Protection
Cyber insurance acts as a financial buffer, covering costs that could otherwise cripple a business. For a mid-sized NBFC with assets of Rs 5,000 crore, a cyber insurance policy with Rs 20 crore in coverage might cost Rs 8 lakh annually—a small price compared to the potential losses from a breach.
Building Customer Trust
A cyberattack can erode customer confidence, especially in fintechs where trust is everything. Insurance shows customers that a company is prepared to handle incidents, which can help maintain loyalty even after a breach.
Supporting Growth
As fintechs and NBFCs scale, they face more complex risks. Cyber insurance provides peace of mind, allowing businesses to focus on growth without worrying about catastrophic losses. It also signals to investors that the company takes risk management seriously.
Meeting Regulatory Requirements
With regulations like the RBI’s cybersecurity guidelines, having cyber insurance can demonstrate compliance and proactive risk management. This is especially important for NBFCs seeking to partner with banks or payment networks.
Challenges in Adopting Cyber Insurance
While the benefits are clear, there are hurdles to overcome:
1. High Premiums
Cyber insurance premiums have tripled since 2018 due to the growing risk profile of fintechs and NBFCs. Smaller companies may find these costs challenging, especially in a tough economic climate.
2. Complex Risk Assessments
Unlike other insurance products, cyber insurance pricing depends on a company’s risk profile. Insurers assess factors like cybersecurity measures, data storage practices, and online presence. This can make the underwriting process complex and time-consuming.
3. Limited Awareness
Some fintechs and NBFCs, especially smaller ones, may not fully understand the need for cyber insurance. This is changing as awareness grows, but education is still needed.
The Future of Cyber Insurance for Fintechs and NBFCs
The surge in cyber insurance is just the beginning. As cyber threats evolve, so will insurance products. Here’s what to expect:
1. Tailored Policies
Insurers are using data analytics and AI to create policies that match the specific risks of fintechs and NBFCs. This includes coverage for emerging threats like AI-driven attacks or smart contract failures in DeFi.
2. Partnerships with Cybersecurity Firms
Insurers are teaming up with cybersecurity experts to offer more than just coverage. These partnerships provide risk assessments, incident response planning, and training to help businesses prevent attacks.
3. Regulatory Push
As data protection laws get stricter, cyber insurance may become a standard requirement for fintechs and NBFCs. In India, the DPDP Act is expected to drive even faster growth in the cyber insurance market once enforced.
4. Focus on Prevention
Insurers are encouraging businesses to invest in cybersecurity measures like encryption, multi-factor authentication, and employee training. Some policies offer lower premiums for companies with strong defenses, creating an incentive to improve security.
How Fintechs and NBFCs Can Choose the Right Cyber Insurance
To get the most out of cyber insurance, fintechs and NBFCs should:
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Work with a specialized broker: A broker familiar with the financial sector can tailor policies to specific risks.
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Assess their risk profile: Understand vulnerabilities like cloud reliance or third-party partnerships.
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Invest in cybersecurity: Strong defenses can lower premiums and reduce the likelihood of claims.
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Review coverage regularly: As risks evolve, policies should be updated to stay relevant.
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Conclusion
The surge of cyber insurance among fintechs and NBFCs reflects the reality of operating in a digital-first world. With cyberattacks on the rise, stricter regulations, and the high cost of breaches, cyber insurance is no longer optional—it’s a necessity. By covering event management, financial losses, and liabilities, these policies provide a safety net that helps businesses stay resilient. As the market grows and policies become more tailored, fintechs and NBFCs can protect their operations, build customer trust, and focus on innovation. If you’re in the financial sector, now’s the time to consider cyber insurance as a core part of your risk management strategy.
