CROWDFUNDING: INSURANCE FOR MORE TRUST

That's it: since March 1, 2017, crowdfunding platforms have been required to acquire professional liability coverage, like all regulated professions. They must therefore comply with the ordinance of May 30, 2014, which entered into force on October 1, 2014, and postponed due to the lack of suitable insurance offers on the market. What does this ordinance provide? What insurance offers are available today to effectively meet this need imposed by regulations?

What insurance terms for crowdfunding platforms?

The 2014 ordinance considers crowdfunding platforms as crowdfunding intermediaries (IFP), or crowdfunding advisers (CIP). Those under IFP status are authorized to put project leaders in contact with lenders, or donors. For their part, those under CIP status specialize in financing in the form of company shares, otherwise known as crowd equity.

Platforms can have a single status or a combination of the two and must comply with the associated rules. For example, they are subject to the ban on offering loans for a term exceeding 7 years. The platforms are also subject to certain obligations. In particular, they must inform lenders and borrowers of the risks involved. 

Professional liability insurance then intervenes to cover the platforms in the event of a breach of these professional obligations. The risks covered are varied: bad information, faults in the selection of projects or lenders, fraud or bankruptcy.

Around a hundred crowdfunding platforms are registered with Orias and have to take out professional civil liability. This insurance must offer guarantees above € 400,000 per claim for CIPs and € 250,000 for PFIs, with minimum amounts per year of € 800,000 and € 500,000 respectively.

 In the event of cumulative status, the professional RCs must also be cumulative. What consequence for the actors who do not comply with this new obligation? The Monetary and Financial Code provides for the delisting of the Orias, therefore the prohibition to practice under CIP or IFP status.

What consequences of this insurance obligation for platforms and insurers?

Pro RC insurance strengthens the credibility of crowdfunding platforms

For crowdfunding platforms, this compliance represents a new constraint, but also a welcome development. Indeed, it should allow them to professionalize their activity. They will benefit from a better image with their lenders and borrowers, in a new environment hitherto relatively poorly supervised. Therefore, this new insurance obligation should increase stakeholder confidence. This factor is all the more essential given that platform funding is not covered by bank guarantees.

Insurers have new outlets for professional liability

Several insurers have positioned themselves as specialists in RC Pro for crowdfunding platforms. This is particularly the case with CNA Hardy, an insurer specializing in business risks, which also offers Civil Liability coverage for Corporate Officers, and Civil Liability for Operations.

While the offer is being studied at Covea-MMA, other insurance players have already launched successfully. 

The broker Verspieren has been supporting Fundimmo and Lymo for several weeks, two platforms specializing in real estate crowdfunding. This market is an alternative to bank financing and should continue to develop strongly. Such offers allow insurers to support innovative projects and help finance a booming sector.

In addition to ensuring the platforms, some players are making a concrete commitment alongside some of them. Thus, Aviva France has forged a partnership with 1001PACT.com, a platform specializing in the financing of start-ups dedicated to actions with a strong social, societal or environmental impact.

 Through its development capital fund, Aviva Impact Investing France, specializing in the financing of Social and Solidarity Entrepreneurship, the insurer invests in projects validated by the fund's investment committee. Concretely, for 1 euro invested by individuals or professionals, the fund invests one euro. A pledge of confidence should reassure investors, and which allows the insurer to improve its image as an investor in the service of the general interest.

After investing in crowdfunding platforms, insurers must take a position on this new market and study the new offers they could offer them. For example, they can target crowdfunding platforms whose action is linked to their historical core business, or platforms that have meaningful projects. And transform this regulatory novelty into an opportunity to support, accompany and develop financing players who are called upon to take up more and more space.