Why Cyber Insurance Claims Are Denied and How to Avoid It

You’ve taken the necessary step of securing cybersecurity insurance for your business, but after an incident, your insurance company refuses to pay. This situation can add stress to an already challenging time. In this blog, we’ll discuss why cyber insurance claims get denied and how you can avoid it by staying aligned with your insurance provider’s requirements.

What Does Cyber Insurance Cover?

Cyber insurance is designed to protect businesses from financial losses and legal costs related to cyber incidents. Typical coverage areas include:

• Data Breaches: Unauthorized access to sensitive information.

• Ransomware Attacks: Threatening to destroy or release stolen data unless a ransom is paid.

• Business Interruption: Disruptions to normal operations, including delays in supply chains and customer service.

• Legal Costs: Fees for lawyers and court proceedings to resolve the impact of the breach.

While insurance is a great safety net, it’s important that your business adheres to the specific requirements set forth in your policy to ensure claim approval.

Common Reasons Cyber Insurance Claims Are Denied

Even with insurance in place, claims can be denied for several reasons. Here are some of the most common:

1. Lack of Proper Security Measures

One of the most common reasons for claim denials is the failure to implement adequate security practices, such as Multi-Factor Authentication (MFA). Studies show that over half of small businesses don’t use MFA. Ignoring such measures or neglecting software updates can significantly increase the risk of cyberattacks and cause your claim to be denied.

2. Insufficient Employee Training

Employees who are untrained or unaware of the dangers of phishing and other cyberattacks are more likely to make mistakes that lead to security breaches. Not only can proper training help mitigate these risks, but it can also improve the likelihood that your insurance claim will be accepted.

3. Delayed Notification to the Insurer

Most policies have a requirement to notify the insurance provider promptly after an incident. This can range from within a specific timeframe to being simply described as “prompt.” Understanding the specific reporting requirements outlined in your policy is crucial to ensuring your claim is processed smoothly.

4. Missing Data Backups

If your business fails to regularly back up data, insurers may view any data loss as preventable. Regular backups are not just good practice; they are often a requirement to ensure your claim is not denied.

5. Unsecured Remote Access

As more businesses adopt hybrid or fully remote work systems, the risks associated with unsecured remote access increase. Employees working from home may use personal or unsecured devices and networks, which can leave your company vulnerable to cyberattacks.

6. Lack of an Incident Response Plan

An incident response plan outlines steps employees should follow in the event of a cyberattack. While not all insurance policies require this, many do. If your policy stipulates an incident response plan, failing to have one could result in a denied claim.

7. Pre-existing Vulnerabilities

If your systems have unresolved vulnerabilities at the time of the attack, insurers may deny your claim. Some policies require proof that these vulnerabilities were addressed before the policy was enacted. If not, the insurer may claim the breach occurred due to these pre-existing gaps.

8. Policy Exclusions

Each cyber insurance policy has specific exclusions, outlining what is and isn’t covered. Failing to fully understand these exclusions can lead to confusion when filing a claim. Always review your policy thoroughly to avoid surprises when it’s time to make a claim.

Meeting Cyber Insurance Requirements

Adhering to the requirements in your cyber insurance policy is just as important as obtaining the policy itself. Here are some tips to help you stay compliant:

• Implement MFA: Use multi-factor authentication on all accounts to reduce the risk of unauthorized access.

• Regular Software Updates: Keep your systems updated to close any security gaps.

• Employee Training: Educate your team on cybersecurity best practices, including phishing awareness and proper data handling.

• Secure Remote Access: Provide employees with secure remote access solutions, such as VPNs and endpoint protection.

• Regular Backups and Recovery Plans: Ensure your data is regularly backed up and create a recovery plan to mitigate data loss in the event of an attack.

• Incident Response Plan: Develop and communicate an effective incident response plan for your team to follow in case of a cyberattack.

• Conduct Regular Security Audits: Perform routine security checks to identify and resolve any vulnerabilities in your systems.

By following these practices, you not only improve your chances of a successful claim but can also lower your premiums.

How Managed Service Providers (MSPs) Can Help

Cybersecurity can be challenging, but working with a Managed Service Provider (MSP) can make the process more manageable. MSPs help by providing:

• Security Infrastructure: Setting up firewalls, encryption, and authentication systems to protect your data.

• Compliance Monitoring: Ensuring your business adheres to industry regulations and guidelines.

• Proactive Threat Management: Monitoring potential threats, training employees, and implementing protective measures to keep your business secure.

MSPs play an important role in keeping your business secure, but they are not responsible for meeting all the requirements of your cyber insurance policy. It’s crucial to work closely with both your MSP and insurance provider to ensure you qualify for coverage and comply with the policy.

Who’s Responsible for What?

Cybersecurity is a team effort. Here’s how responsibilities are typically divided:

• Your Business: It is your responsibility to ensure your company follows cybersecurity best practices. This includes maintaining security measures, training employees, and reporting incidents promptly.

• Your MSP: MSPs assist in implementing security practices and monitoring your systems, but they are not liable for meeting your insurance policy’s requirements.

• Insurance Provider: Insurance companies assess your claim based on the terms of your policy. They will determine whether you meet the necessary criteria for a payout, so providing accurate documentation and evidence is key.

Conclusion

Cyber insurance is an essential part of protecting your business, but it’s only effective if you meet the policy’s requirements. By implementing robust cybersecurity measures, staying proactive, and working closely with your MSP and insurance provider, you can avoid claim denials and ensure your business is well-protected.