As a result of the ever-increasing risk posed by cybercriminals, any organization leveraging technologies and IT infrastructure must invest in cybersecurity insurance. This is no longer an option for businesses relying on digital systems; it has become essential! Unfortunately, growing cyberattacks make it nearly impossible for insurance firms to onboard new customers or approve the claims of existing ones. Moreover, companies often face rejections when attempting to get cyber insurance due to an onerous application and renewal process.
What is cyber insurance?
Cyber insurance is a type of insurance product that an entity or business purchases as a contract to help minimize the financial risks associated with online businesses or businesses that leverage technology. The policyholder pays a monthly or quarterly fee while transferring the risk to the insurer.
Cyber insurance is a new and emerging industry that grew from US$ 9.73 billion in 2021 to US$ 11.75 billion (approx.) in 2022. It reflected a compound annual growth rate (CAGR) of 20.7% over the past two years. But cyber insurance companies are reluctant to offer claims or accept insurance proposals from companies because of various reasons.
Reasons why your company may be denied cyber insurance
Companies may be denied cyber insurance coverage for a variety of reasons. Some common reasons include:
Inability to demonstrate appropriate security measures
The inability of companies to highlight their security robustness despite following strict regulations, security policies, best practices, and robust benchmarks is a significant reason for denial, as insurers may view them as high risk. The most effective way to handle this is to let the insurance companies assess all the preventive measures and gauge the security on various metrics. They might ask your organization to provide evidence. A penetration test or audit report can demonstrate that their prospective clients are sufficiently protecting their networks and systems. Organizations should keep these reports ready, as the insurance firm might want them at any point.
2. Lack of preventive measures
A lack of preventative measures of cyber security best practices is another common reason organizations are denied cyber insurance. Cybersecurity is a highly complex IT endeavour, making assured security impossible. Sadly, many companies are not paying attention to their cybersecurity measures through penetration testing, frequent audit or compliance verification. It is the primary reason cyber insurance companies deny claims or onboarding, as a lack of preventive measures suggests the company failed to shield its systems. Since the risks far outweigh the benefits of working with such companies, cyber insurance firms refuse to assume risk. So, before claiming or buying cyber insurance, companies should take proactive measures to secure their perimeter. Hiring penetration testers and security audit professionals to test the entire system and fix the vulnerabilities is a step in the right direction.
3. History of prior data breaches
If a company has had a data breach in the past, insurers may view them as a higher risk and deny coverage or charge higher premiums. Even if the issues that led to a breach were fixed, insurers might be hesitant to provide coverage due to the potential for future breaches. Additionally, if a company's breach was caused by a lack of security measures, such as inadequate firewalls or unpatched software, insurers may view the company as too high of a risk to cover. Companies should be sure to demonstrate that their cybersecurity practices have improved in order to mitigate the chance of future breaches and increase their chances of getting cyber insurance.
4. Non-compliance with regulations
Organizations that do not comply with laws and regulations regarding cybersecurity are more likely to be denied coverage. For example, a healthcare provider that is not compliant with HIPAA regulations may be denied cyber insurance. PCI DSS, SOC2, FedRAMP, ISO27001, MPA are other compliance regulations that companies must adhere to to be eligible for coverage. Insurance companies may view non-compliance as an increased risk of data breaches and other cyber incidents.
5. Lack of an incident response plan
Insurance companies may deny coverage if they find that a company does not have an incident response plan in place. This is because a lack of an incident response plan demonstrates that the company is not taking all necessary measures to respond appropriately in case of a cyber incident.
6. High-risk industries
Some industries, such as healthcare and finance, are considered to be at higher risk for cyber attacks and may be more likely to be denied coverage or face higher premiums. This is because insurers consider these industries vulnerable to various threats and have large amounts of sensitive data that could be compromised. Companies should take the necessary measures to mitigate risk and demonstrate this to insurers.
It is essential for companies to understand cyber insurance policies and the reasons for the denial of coverage. Companies can significantly increase their likelihood of obtaining coverage by improving in areas where they are not meeting their insurer's criteria.
The cyber insurance landscape is quickly evolving and changing, and many more companies are being denied coverage even with proactive measures in place. Regardless, companies should evaluate their cyber security posture and ensure they meet all applicable laws and regulations to increase their chances of receiving coverage.
Packetlabs can assist companies in identifying gaps in their security posture and provide the necessary tools, services, and expertise to secure their networks. Taking preventive measures such as conducting penetration tests and implementing security solutions can drastically improve the chances of a successful cyber insurance application.