Why Cybersecurity Insurance Might Not Save Your Business

Introduction

Cyberattacks are rising: in 2023, the average cost of a data breach reached USD 4.45 million. Many businesses turn to cyber insurance to hedge against incident costs, believing it’s a safety net. However, relying solely on a policy can leave critical gaps in your risk management strategy. This article explores why cybersecurity insurance might not save your business and offers actionable advice to build stronger defenses—with or without an insurance policy.

Limitations of Cybersecurity Insurance

1. Exclusions and Coverage Gaps

Insurance carriers often insert fine-print exclusions that can void or limit coverage:

• Social engineering exclusions: Some policies exclude losses from business email compromise or CEO fraud.
• Zero-day vulnerabilities: If a breach exploits an unpatched, unknown flaw, insurers may refuse to pay.
• Unapproved security controls: Failure to implement mandatory measures (e.g., multifactor authentication) can trigger denial.

For instance, CNA Financial’s 2021 ransomware breach reportedly met significant pushback from its insurer due to disputed exclusions.

2. Rising Incident Costs and Premiums

As cyberclaims spike, insurers raise premiums and lower coverage limits. According to Forbes Tech Council, average cyber insurance premiums increased by 30% between 2021 and 2022. Meanwhile:

• Average ransomware payment: USD 812,000 (Statista).
• Claim denials: Up to 20% of submitted cyber claims are rejected due to noncompliance with policy stipulations.

High deductibles and sub-limits can leave businesses responsible for millions in residual costs.

3. Regulatory and Compliance Hurdles

Policies often demand evidence of compliance with specific frameworks (e.g., NIST CSF, HIPAA). Failing an audit or missing certification milestones can be grounds for claim denial:

• Documentation gaps: Lack of logs or incident reports.
• Late notification: Most policies require notifying insurers within 48–72 hours.

4. Moral Hazard and Misaligned Incentives

Relying on insurance can create a false sense of security. Organizations may underinvest in proactive security measures, believing the insurer will cover any fallout. This behavioral pitfall undermines robust risk management and often results in higher long-term incident costs.

5. Evolving Threat Landscape

Insurers base premiums on historical data. Yet cyber threats evolve rapidly, with new tactics like AI-driven phishing or supply-chain attacks emerging faster than policies can adapt. A policy crafted last year may not fully address tomorrow’s threats.

Strengthening Your Risk Management Strategy

Rather than relying on insurance alone, build a multi-layered defense. Here are practical steps:

Step 1: Conduct a Comprehensive Risk Assessment

1. Identify critical assets (customer data, intellectual property).
2. Map threat scenarios (ransomware, insider fraud).
3. Quantify potential incident costs (downtime, legal fees).

Step 2: Implement Technical Controls

• Multifactor Authentication (MFA): Enforce MFA for all remote access and privileged accounts.
• Endpoint Detection and Response (EDR): Deploy solutions that monitor and isolate suspicious behavior in real time.
• Regular Patch Management: Automate updates for operating systems, network devices, and applications.
• Secure Email Gateways: Leverage advanced threat protection to filter malicious attachments and URLs.

Step 3: Build a Robust Incident Response Plan

1. Define roles and responsibilities for your response team.
2. Develop communication templates for stakeholders, customers, and regulators.
3. Run quarterly tabletop exercises to validate procedures.
4. Maintain an up-to-date contact list for law enforcement, legal counsel, and your cyber insurance provider.

Step 4: Train and Simulate

• Conduct phishing simulations monthly to test employee vigilance.
• Offer role-based security training (IT, HR, finance).
• Track training metrics: click rates, incident reports, and remediation times.

PhishDef’s platform can automate realistic phishing campaigns and provide actionable feedback—closing the human risk gap.

Step 5: Regularly Review and Test

• Schedule annual third-party penetration tests.
• Use continuous vulnerability scanning and remediation tracking.
• Align security controls with evolving frameworks like ISO 27001 or SOC 2.

Real-World Examples

Case Study: Colonial Pipeline

In May 2021, a ransomware attack shut down the East Coast’s largest fuel pipeline. Although the operator had cyber insurance,:

• Insurance covered only a fraction of the USD 4.4 million ransom.
• Regulatory fines and reputational damage added tens of millions in losses.

Example: Small-Medium Enterprise (SME)

A 150-employee firm suffered a phishing attack that exposed customer PII. The insurer denied the claim, citing lack of MFA and inadequate email filtering—controls explicitly required in the policy. The business absorbed USD 500,000 in notification, remediation and legal fees.

Key Takeaways

• Cyber insurance alone isn’t a substitute for proactive risk management.
• Policies have exclusions, limits, and compliance requirements—read fine print carefully.
• Implement layered security: MFA, EDR, email protection, and regular patching.
• Develop and test an incident response plan; train employees continuously.
• Review and update controls to address the evolving threat landscape.

Call to Action

Don’t wait for an incident to reveal your coverage gaps. Strengthen your defenses today with PhishDef’s comprehensive anti-phishing and security-awareness platform. Request a demo to see how we help organizations reduce risk, lower incident costs, and complement your cyber insurance strategy.