Insurtech at a crossroads: Risk, regulation and reinvention

Nick Rugg explains why insurtechs need comprehensive insurance solutions to navigate evolving risks and regulations.

Published on October 22, 2025

By Nick Rugg

Head of Fintech & Investment Management Insurance

First published in InsurTech Digital, October 2025

4-minute read

Insurtechs stand as some of the most remarkable success stories in the insurance sector.

The US, Europe and the UK are at the forefront of this insurtech growth – the UK has attracted the second largest share of insurtech funding in the world since 2019, beaten only by the US, receiving over £1bn in venture capital funding.

But with growth comes exposure in the form of cyber attacks, fraud and regulatory pressure.

Managing risk is important in gaining investor confidence, protecting the balance sheet and maintaining operational resilience.

There's a lot to consider for a fast-paced insurtech focused on growth and innovation. Considering this challenge, a tailored insurance solution packaged within a single, comprehensive policy is the best approach.

Additionally, providing service support in areas such as tax, legal and regulatory guidance can deliver significant value for insurtechs.

Being able to access these services free of charge through an insurance policy can be hugely beneficial to insurtechs, as they scale and navigate their day-to-day business risk exposures.

The key takeaway: insurtechs require more than just basic insurance coverage.

Supporting the growth journey

Professional liability insurance is a mandatory requirement for many regulated insurtechs and a necessity for offering their services legally.

However, insurance does far more than just ticking a box. Having the right insurance can also help attract investment.

When companies seek funding, investors want adequate cover to transfer risks off the balance sheet and to protect the personal liabilities of directors.

Often, when they put capital in, they'll want a say in governance. This is when D&O insurance becomes critical.

When insurtechs look ahead to plan for scaling into new territories, they need an insurance policy that supports that growth.

Appropriate insurance will help the process of obtaining local licenses and ensure compliance with all the different regulatory regimes. Whether expanding into regions like the UK, Europe, Asia, or Canada, each jurisdiction has its own rules, and insurers need to have the right cover tailored to those specific requirements.

Naturally, balance sheet protection is vital. Many of these companies are still young, with a limited financial cushion, so without proper insurance, covering areas such as cyber, crime, regulatory investigations or legal claims, they risk significant negative impacts to their financials. All these elements are key when planning for growth and expansion.

Shifting regulation

Regulation in the insurtech and broader fintech industries is constantly changing. Recently, there have been significant updates around cyber and tech resilience.

For example, the Digital Operational Resilience Act (DORA) came into force earlier this year to make sure companies have solid measures in place to handle cybersecurity threats and tech failures.

It sets new standards and requirements to help companies build stronger resilience into how they operate, not just in the tech sector, but across financial services.

There's also the EU AI Act, which was introduced last year. This regulation is pushing insurtechs to develop AI systems that are explainable, fair and free from bias.

It's especially important for life and health insurance, where sensitive data and critical decision-making are involved. Insurtechs need to make sure their AI tools are transparent and protect customer privacy.

On top of that, UK Consumer Duty is making companies improve the customer experience.

The focus is on fair pricing, responsible selling and making sure customers, including vulnerable ones, get good outcomes. All these changes mean insurtechs need to remain agile and adapt their practices, while keeping honesty and fairness at the front of everything they do.

Fast-evolving risk threat

As technology evolves new risks arise too, with artificial intelligence bringing notable exposures. There's the issue of hallucinations within AI, especially when used for underwriting or claims.

If the AI makes errors or fabricates information, it can cause serious problems around pricing, risk acceptance and claims handling. Decisions made by AI therefore need to be regularly tested and transparent.

A strong governance framework must also oversee the use of this technology, ensuring companies are utilising it with due care and attention for stakeholders, customers and clients.

Malicious actors are using AI to create highly advanced deep fake scenarios.

In February last year, an employee based in Hong Kong transferred US$25m because they thought they were on a Microsoft Teams call with the board of directors, when it was a fraud.

Global digital fraud losses are estimated at US$48bn. Beyond AI, cyber incidents continue to escalate, with around 70% of organisations experiencing more attacks than last year.

The reputational damage from cyber breaches can be devastating – loss of customer trust, negative publicity and difficulties attracting new customers and retaining existing ones.

Moving beyond generic cover

Despite all the risks and regulatory complexities, there may be a temptation for insurtechs to opt for cheaper off-the-shelf policies. This may appear to save money but it's a false economy as insurtechs can be left with gaps in coverage.

A comprehensive all-in-one policy – encompassing all the key risks such as PI, D&O, crime and cyber – fulfils all the insurance needs in one place, saving a busy insurtech time while offering true peace of mind.

And in the event of a claim, there's only one insurer handling the case, avoiding unintended gaps in coverage through multiple policies with different insurers.

Insurtechs should also look for an insurance policy that can go beyond insurance coverage. A policy that can help them with free access to legal helplines, tax assistance and support in grants or funding proposals will be a valuable tool to have.

A different insurtech world

In the past, insurtechs have enjoyed a growth funding environment, with easy access to capital and a focus on customer acquisition. Today's world has seen rising interest rates, tighter capital markets and investor caution.

A comprehensive all-in-one insurance policy will improve credibility and trust, increase investor confidence and protect the balance sheet in a world of increasingly unpredictable risks.

This enables insurtechs to focus on what they do best: serving their customers and driving profitable growth.