For any kind of risk that exists—fire, accident, flood, illness—there is usually some kind of insurance available. Insurance allows you to pay a consistent amount over time so that you don’t have to pay a much larger amount in the event of a crisis. It mitigates risk for the insurance buyer while making a profit for the insurance provider. Cyber insurance is insurance that covers businesses in the event of a cyber attack.
However, it’s not so simple as paying a monthly fee and then not having to worry about cybercrime any more. Instead, cyber insurance should be part of a larger risk mitigation strategy.

How Cyber Insurance Works
Cyber insurance helps you cover the cost to your business when it becomes the victim of a cyberattack. A good policy will cover both your direct costs and your legal liability to other parties. First-party coverage, which covers the costs to your business, includes the following:
- Lost revenue due to network downtime
- The cost of notifying customers of a breach
- Recovering data lost in an attack
- System damage repair
- Ransomware demands
In addition to direct harms to your business from a cyberattack, it’s also important to consider your liability. Just as your car insurance includes liability insurance to compensate someone else you might hit with your car, cyber insurance should include third-party coverage in case someone is harmed by a data breach in your servers. This includes things like:
- Payments to affected customers
- Legal liability to your business partners
- Lawsuits and litigation
- Fees and penalties levied by the government
Keep in mind, however, that if your business is actually at fault through its own negligence, cyber insurance will not pay your legal settlements and penalties.
Making Yourself a Good Risk
Car insurance companies prefer to cover safe drivers and will reward you if you have few accidents or tickets. Home insurance companies may insist you keep working fire alarms. It’s a matter of the insurance company judging that you aren’t going to make a disproportionate number of claims due to your own irresponsibility.
In the same way, cyber insurance companies will want to know that you are doing your part to keep your network safe. You might be denied coverage altogether if you are not considered a good risk.
A cyber insurance company may deny you coverage if you:
- Don’t have adequate security measures
- Fail an audit or penetration test
- Don’t follow appropriate regulations
- Don’t have a response plan
- Have a history of past breaches
As you can see, cyber insurance isn’t a substitute for proper security. Rather, proper security can be a prerequisite for a good insurance policy.
Things Cyber Insurance May Not Cover
As with most types of insurance, the company will avoid paying out if there is any reason to believe the damage was caused by your own negligence. Even companies with excellent security may rarely become victims of cybercrime. However, if your security is poor, your cyber insurance may argue that due diligence on your part would have prevented the crime.
For instance, human error is generally assumed to be your fault. If someone within the company gave up their password or ignored best security practices, the insurance may not pay out. Human error is one of the most common reasons why a cyberattack is successful. Avoiding it means training every person with access to sensitive data and ensuring they actually follow correct procedures.
Another potential reason for a denied claim is that your security was weak. You might have been following appropriate standards when you purchased the policy, but if you failed to keep up with evolving threats, you might not be up-to-date anymore. If so, that can be a reason the insurance company denies a claim.
Insurance Alone Isn’t Enough
In general, every business dealing with sensitive data should have a cyber insurance policy. However, that should never be the beginning and end of your security measures. You will be more likely to be able to get a good policy at an affordable rate if your security is strong already. And, if you’re out of compliance with regulations and best practices, you may become the victim of a cyberattack that insurance will refuse to cover.
How can you know if you’re compliant with the necessary standards? Mission Compliant can conduct an analysis of your business’s security and show you how to bring it up to standard. Contact us to find out how.