India's fintech boom needs a new conversation on liability insurance

India's digital economy has become one of its greatest success stories. Fintech platforms are redefining payments, lending, wealth management and insurance distribution. Artificial intelligence is reshaping financial services, while SaaS companies now power critical operations across every industry. Indian technology companies are no longer merely enabling businesses they are becoming part of the infrastructure those businesses depend on.

As these businesses mature, so do the risks they create.

The conversation around technology risk in India has largely focused on cyberattacks, data breaches and regulatory compliance. These matter enormously. But from a legal perspective, an equally significant risk receives far less attention: professional liability. Companies acquire insurance, sometimes substantial insurance, but the coverage they buy does not match the risk their business actually generates. The gap is invisible until a claim arrives, by which point the options are limited.

The assumption behind most technology companies' approach to insurance is that having several policies means having comprehensive coverage. It does not. A commercial general liability policy covers bodily injury and property damage. A cyber policy inter alia covers losses from unauthorised access, data breaches and ransomware. A directors and officers policy covers claims against individual officers for wrongful acts in their managerial capacity. Each has a distinct insuring agreement and its own exclusions and the territory between them, where substantial losses occur, is often uninsured territory.

Technology companies today are routinely exposed to obligations that would have been uncommon a decade ago. Enterprise customers expect vendors to stand behind their products and services, indemnify them for losses arising from technology failures, meet stringent service-level commitments, and assume responsibility for errors in software, implementation or data processing. As commercial relationships grow more sophisticated, so does the allocation of legal liability.

What may have not kept pace is how companies think about liability insurance.

One of the most common assumptions I encounter is that a company which has operated for ten or twenty years without a Professional Indemnity claim must already have adequate cover or worse, may not require a professional indemnity cover at all! That assumption is increasingly hard to defend. The absence of historical claims is not evidence of the absence of future risk; it may simply reflect a different, less exposed, commercial and legal environment.

Today's technology businesses operate in an ecosystem that is more interconnected, more regulated and more litigious than the one their insurance programmes were originally designed for. Enterprise customers negotiate stronger contractual protections. Regulators exercise greater oversight. Consumers are more aware of their rights. A single technology failure can now cascade across supply chains and financial systems. The legal exposure of technology companies has expanded, not because they have become less competent, but because their services have become more integral to how the economy functions.

In my experience advising on liability claims, the most difficult disputes stem from allegations that a technology service failed to perform as promised, or that a business did not exercise reasonable professional care in delivering it.

Consider a recent Business Email Compromise matter. A third party suffered a multi-million-dollar loss after fraudulent emails were sent from an insured company's compromised email environment. The claim did not stop at the cyber incident itself. The claimant argued that the insured had failed to maintain adequate technological safeguards, despite being responsible for facilitating secure transactions as part of its professional services. What began as an alleged cyber incident evolved, within weeks, into allegations of professional negligence, contractual breach and failures in technology governance, three distinct legal theories arising from one event.

This is increasingly the nature of technology liability. A single incident can trigger contractual claims, regulatory scrutiny and allegations of professional negligence simultaneously. The legal characterisation of the claim often matters as much as the incident itself, because while a cyber policy may respond to the consequences of a security incident, allegations concerning the negligent delivery of professional or technology services may require a different liability analysis altogether.

For fintech companies, the risk profile is compounded by the regulatory environment in which they sit. Take a lending-technology company that licenses its underwriting platform to a non-banking financial company. That company is simultaneously a technology vendor, a participant in a regulated financial activity, and under the evolving framework of the Digital Personal Data Protection Act, 2023, a processor of sensitive personal data. If that platform generates systemic errors in credit assessment, the exposure will not follow a single legal theory. It follows several at once, across contract, statute and regulatory enforcement, each capable of generating its own category of cost: customer redress, regulatory penalty, and third-party contractual damages, potentially all from one coding defect.

A standard Professional Indemnity or cyber policy, bought off the shelf, is unlikely to have contemplated that combination.

The solutions are largely available. Their strategic adoption has yet to become equally sophisticated.

The encouraging news is that the insurance market has evolved considerably to meet these challenges. India does not suffer from a shortage of sophisticated liability solutions. Professional Indemnity policies today are highly customisable and can be tailored to a company's specific business model, contractual obligations and regulatory environment. Carefully negotiated endorsements allow insurers to address a wide spectrum of technology-related liabilities, and international reinsurance support has further strengthened underwriting capacity for complex and emerging risks.

The challenge, then, is seldom the absence of available insurance. It is the failure to align the insurance a company buys with the liabilities its business exposes the organisation to.

Insurance is often treated as a procurement exercise undertaken shortly before renewal. It should instead be part of the legal risk assessment that accompanies every major commercial contract. Before accepting a broad indemnity obligation, or agreeing to assume responsibility for technology failures, companies should ask one simple question at the negotiating table, not after the contract is signed: How far is this liability actually insured?

That question deserves a permanent place in the boardroom, particularly as Indian technology companies attract increasing institutional investment. Investors today assess far more than revenue growth; governance frameworks, operational resilience and contingent liabilities are all integral to due diligence. A thoughtfully structured Professional Indemnity programme signals that management has identified its legal exposures and taken considered steps to protect the balance sheet against them. It demonstrates preparedness, not optimism.

Three questions worth asking before the next renewal:

1. The legal function is a critical partner in evaluating the liability exposures arising from a company's business activities, whether direct or consequential. Insurance should therefore not be reviewed in isolation. It should be assessed alongside the possible liability exposures of the company, arising from its services.

2. Identify the gaps between policies, not just within them. Stress-test the policies regularly with the insurance intermediary based on industry trend and claims.

3. Revisit cover every time the business model changes. A new product line, a new regulatory licence, or a new category of customer contract is a trigger for reassessment,  not the next renewal date.

Professional Indemnity insurance should not be viewed merely as a contractual requirement imposed by customers, or a compliance checkbox to be ticked. Properly structured, it protects balance sheets, supports business continuity, and enhances investor confidence by reducing uncertainty around potentially significant legal liabilities.

India's technology and fintech ecosystem has shown remarkable innovation, and the insurance industry has evolved alongside it, offering flexible products capable of responding to increasingly complex liability exposures. The next stage of that evolution is not about creating more insurance products. It is about changing how businesses think about the ones that already exist.

Liability exposure is shaped as much by the way a business operates as by the contracts it signs. As technology becomes increasingly embedded in critical commercial and financial infrastructure, Professional Indemnity Insurance should no longer be viewed simply as a means of satisfying contractual requirements. It is a strategic risk management tool that protects enterprise value, supports business continuity and reinforces confidence among customers, investors and regulators alike.

About the author: Soumya Shukla is an Executive Partner at ElpeeCo.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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