What Cyber Insurance Actually Covers
Cyber insurance policies generally fall into two broad categories of coverage: first-party and third-party. First-party coverage protects your organization directly. This typically includes incident response costs (forensics, legal counsel, crisis communications), business interruption losses caused by a cyber event, data restoration expenses, ransomware payments and negotiation costs (where legally permitted), notification costs for informing affected individuals, and credit monitoring services for impacted customers or employees. Third-party coverage protects you against claims from others. This includes legal defense costs if you’re sued after a breach, regulatory fines and penalties (where insurable by law), settlements or judgments from affected parties, and media liability related to data breaches. Some policies bundle both into a single package. Others are modular, letting you select coverage areas individually. The specifics vary significantly between carriers, which is why reading the actual policy language — not just the marketing summary — matters.What Cyber Insurance Typically Does Not Cover
Understanding exclusions is just as important as understanding coverage. Common exclusions include: Prior known incidents. If you were aware of a vulnerability or breach before the policy period and didn’t disclose it, the resulting claim will almost certainly be denied. Failure to maintain minimum security standards. Many policies include a “minimum security requirements” clause. If you represented that you had multi-factor authentication deployed but didn’t, or claimed you patched critical vulnerabilities within 30 days but didn’t, the carrier can deny the claim. Nation-state attacks. Some policies include a “war exclusion” or “hostile act” exclusion that can apply to cyberattacks attributed to foreign governments. This has been tested in court multiple times with inconsistent outcomes, making it one of the most contested areas in cyber insurance. Infrastructure outages caused by third parties. If your cloud provider has an outage that disrupts your business, your cyber policy may not cover the resulting losses unless you have specific “system failure” or “dependent business interruption” coverage. Intentional or criminal acts by the insured. If the breach was caused by an employee acting maliciously with the knowledge of management, coverage is typically excluded. Improvements and upgrades. Cyber insurance pays to restore you to your pre-incident state. It won’t fund security upgrades, new tools, or improvements to your infrastructure — even if those improvements are desperately needed after the breach.How Premiums Are Calculated
Insurers evaluate your organization across several dimensions to set your premium. Understanding these factors gives you leverage to reduce costs. Industry and size form the baseline. Healthcare, financial services, and retail tend to pay higher premiums due to the volume and sensitivity of the data they handle. Revenue and employee count further refine the estimate. Security posture is increasingly the biggest variable. Carriers now routinely assess whether you have multi-factor authentication across all remote access and privileged accounts, endpoint detection and response deployed on all devices, a tested incident response plan, regular employee security awareness training, immutable or air-gapped backups, a vulnerability management program with defined patching SLAs, and email authentication controls (DMARC, DKIM, SPF). Organizations that can demonstrate strong controls in these areas typically see significantly lower premiums. Those that can’t may struggle to get coverage at all. Claims history matters. Prior incidents, especially recent ones, will increase your premium or narrow your coverage terms. Coverage limits and deductibles are the final lever. Higher limits cost more. Higher deductibles cost less. Most small and mid-sized businesses carry between 5M in coverage, though the right amount depends on your risk exposure.How to Buy Cyber Insurance: A Step-by-Step Process
Start with a broker who specializes in cyber. General insurance brokers can place a cyber policy, but a specialist broker understands the nuances of policy language, knows which carriers are paying claims reliably, and can negotiate terms that a generalist won’t think to ask for. Ask for references from companies in your industry. Get your security house in order before applying. The application process has become a security assessment in its own right. Carriers will ask detailed questions about your security controls, and your answers become representations — essentially warranties. If you overstate your security posture and later file a claim, the carrier can deny it based on material misrepresentation. Be honest, even if it means your premium is higher. Compare at least three quotes. Policies vary dramatically in coverage terms, exclusions, sub-limits, and retroactive dates. Don’t compare on price alone. Look at the scope of incident response services included, whether the policy covers regulatory investigations, how “computer system” and “security failure” are defined, whether social engineering and funds transfer fraud are covered, and what the waiting period is for business interruption claims. Negotiate the panel. Most cyber policies include a pre-approved panel of breach counsel, forensics firms, and crisis communications agencies. If you already have relationships with specific providers, ask the carrier to add them to the panel. Using off-panel vendors can reduce or eliminate reimbursement. Review the policy annually. Your risk profile changes as your business grows, adopts new technology, enters new markets, or faces new regulatory requirements. An annual review ensures your coverage keeps pace.How to File a Claim and Maximize Your Recovery
When an incident happens, the first 48 hours determine whether your claim succeeds or fails. Here’s how to navigate it. Notify your carrier immediately. Most policies require notification within a specific timeframe — often 72 hours of discovering the incident. Late notification is one of the most common reasons claims are denied or reduced. When in doubt, notify early and provide details later. Engage your breach counsel first. Before you call your IT team, your PR agency, or your forensics firm, call the breach counsel on your policy’s panel. Communications routed through legal counsel may be protected by attorney-client privilege, which can be critical if litigation follows. Your breach counsel will quarterback the entire response and ensure everything is documented properly for the claim. Document everything. Every cost, every decision, every communication should be recorded. Carriers require detailed documentation to process claims, and gaps in your records create gaps in your reimbursement. Keep receipts, invoices, time logs, and a running timeline of the incident and response. Don’t authorize major expenditures without carrier approval. If you need to hire a forensics firm, engage a crisis communications agency, or make a ransomware payment, get your carrier’s written approval first. Unauthorized expenses may not be reimbursed, even if they were reasonable and necessary. Track business interruption losses carefully. If your operations are disrupted, document the financial impact daily. Compare actual revenue to projected revenue using historical data. Track the costs of any temporary workarounds, overtime, or manual processes. Business interruption claims are often the largest component of a cyber insurance payout, and they require the most rigorous documentation.Red Flags That Your Policy May Not Protect You
Review your current policy for these warning signs: A retroactive date that doesn’t cover your full history with the carrier. If your retroactive date resets each year, incidents that began before the current policy period may not be covered. Sub-limits that are too low to be meaningful. A policy with a 100K sub-limit on ransomware payments or business interruption doesn’t provide the protection the headline number suggests. Vague definitions of “security failure” or “computer system” that could allow the carrier to argue your specific incident doesn’t qualify. No coverage for dependent or contingent business interruption. If a vendor, supplier, or cloud provider is compromised and your business is disrupted as a result, you need this coverage. Exclusions for “failure to maintain” security controls without clearly defining what those controls are.Key Takeaways
Cyber insurance is a critical layer of your risk management strategy, but it’s not a substitute for strong security. The best outcomes happen when your security program reduces the likelihood and impact of incidents, and your insurance policy covers the residual risk that remains. Buy thoughtfully, document relentlessly, and review annually.ContraForce helps organizations strengthen their security posture — which also happens to reduce your cyber insurance premiums. Learn more about our platform.