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The Danger of Ignoring Your Cyber Insurance Policy Terms

Cyber threats pose a significant risk to businesses across every industry. As organizations increase their reliance on digital infrastructure, the potential for damage due to cyberattacks also increases. With cybercrime expected to cause $8 trillion of damage in 2023 alone, no industry is safe. As a result, cyber insurance has emerged as a crucial component of risk management. However, businesses not following the terms of their policy may not be covered as well as they think they are.

What Is Cyber Insurance?

Cyber insurance is coverage that helps with IT recovery costs after a cyber-related security breach or similar event. It has become increasingly important as businesses rely on technology, and the number of cyber threats has risen. Any company reliant on digital infrastructure for its work can benefit from cyber insurance. That also includes those that handle personally identifiable records, financial data, or health information

Cybersecurity Is Required for Cyber Insurance Policies

Most cyber insurance providers have cybersecurity as a core requirement for coverage. Rather than simply giving a financial safety net, insurers are striving to minimize the risk of an incident occurring in the first place. What’s required depends on the type of coverage. While there are all-encompassing policies, most businesses will want to pick one that best aligns with their security needs and concerns.

The Risk of Ignoring Cybersecurity Policy Requirements

When it comes to cybersecurity, it’s easy to let some aspects slip. For example, Microsoft has noted ongoing concerns with low MFA usage through their Microsoft 365 suite of software solutions. Even if it’s a policy requirement, it hasn’t stopped some businesses from cutting corners due to time, cost, or a lack of understanding.

Failing to meet the policy requirements can lead to different consequences:

Denial of Coverage: When not in compliance, an insurer may deny coverage when a claim is filed. For example, if the company didn’t maintain its cybersecurity measures as required, the insurer might argue that it took on unnecessary risk, leading to the cyber incident.

Policy Cancellation: Some insurers may cancel the policy altogether if the policyholder is found to be non-compliant with the requirements. That would leave the company unprotected against future cyber threats.

Increased Premiums: Failure to meet the requirements may not always lead to outright denial or cancellation. Still, insurers might increase the policy’s premiums as the company is seen as a higher risk. The financial impact would depend on the severity of the shortcomings.

Legal Consequences: Cyber insurance can only cover legal costs if the business maintains the expected cybersecurity practices. If a breach occurs and it is found that the company was not following them, they will have to take on any legal costs. It can be costly if customer or client data is compromised.

Operational and Financial Impact: If an incident is not covered, the company will have to bear the full cost of recovery from a cyber incident. That can include system repairs, data recovery, regulatory fines, and business interruption. These costs can be substantial and potentially devastating for smaller businesses.

To ensure complete coverage and mitigate these risks, companies should fully understand their cyber insurance policy requirements and take all necessary steps to comply. Regular reviews and audits of cybersecurity practices and open dialogue with the insurance provider can help stay aligned with policy requirements.

Examples of Cyber Insurance Policy Requirements

Cyber insurance companies usually have cybersecurity requirements that their customers need to follow. These rules are designed to minimize risk by encouraging sound cybersecurity practices. Here are some standard inclusions:

Multi-Factor Authentication (MFA)

MFA is a security measure that adds extra steps to verify a user’s identity when logging in. MFA typically involves at least two forms of proof: such as a password and a code sent to the user’s phone. That makes unauthorized access more difficult as attackers are unlikely to have both. Insurers often require it because it is simple to set up and practical to use.

Risk Assessments

Insurance companies may require businesses to conduct regular risk assessments to identify and manage cybersecurity vulnerabilities. That could involve assessing technical factors, like the security of a company’s IT infrastructure, and other areas, like employee training and awareness programs.

Cybersecurity Frameworks and Controls

Insurers often require businesses to adhere to recognized cybersecurity frameworks, as they are proven to work and have a standardized process. That can include NIST, ISO/IEC 27001, PCI DSS, or even industry-specific regulations like HIPAA for healthcare entities.

Incident Response Plan

An incident response plan allows businesses to react to incidents quicker and more effectively. This plan should outline the steps to take in the event of a cyberattack, including specific roles and responsibilities, communication strategies, and procedures for investigating and remediating breaches.

Regular Software Updates and Patching

Ensuring all systems are up-to-date with routine software patching is critical to cybersecurity. Outdated systems can have vulnerabilities that cybercriminals exploit, many of which may have already been fixed. Insurance companies may require evidence of software updates and patch management.

Use of Anti-Malware and Firewall Protection

Many policies will stipulate using certain types of cybersecurity software, such as anti-malware programs and firewalls. Those are standard across every industry and are used by individuals and companies alike.

Encryption and Secure Storage Practices

Insurers may require companies to encrypt sensitive data and use secure storage practices. That can include storing sensitive data in an off-site location or using secure cloud storage services. Doing so reduces the chance of valuable data being stolen.

Training and Awareness

With 85% of data breaches caused by human error, cyberattacks like phishing rely on exploiting that. As such, insurers may require businesses to provide regular cybersecurity training to their employees to raise awareness of these threats and how to prevent them.

Will a Cyber Insurance Policy Be Voided if Not in Compliance?

Whether a cyber insurance policy is voided or not depends on where a business is coming up short with its cybersecurity. If MFA is a policy requirement, a company that suffers a cyberattack preventable by it will likely be denied payment and be legally liable. However, suppose MFA can’t stop the type of attack, and they’re otherwise in compliance with the other security requirements. In that case, they may still be eligible for some coverage for an incident.

Any organization lacking in one or two areas may get some claims denied, but their policy will likely stay active. That will also allow them to fix non-compliant aspects of their cybersecurity process, at which point they’ll stop getting those claim denials. However, more significant policy breaches may cause the cyber insurer to cancel the policy outright.

Some Cyber Insurers Can Restructure Policies

If a business is struggling with meeting the minimum requirements long-term, rather than voiding the policy or continually denying claims, insurers may be able to restructure it. That could mean a price hike to receive similar coverage while cutting down on IT security needs. Alternatively, they may decrease the scale of the policy, so it covers less but also requires less to remain in compliance. That can also keep it more affordable. While not every insurance provider will do it, they aim to provide fair coverage while not taking unnecessary risks.

Always Comply With Your Cyber Insurance Policy

Understanding and complying with your cyber insurance policy is crucial to protecting your business from cyber threats. These policies often lay out specific requirements designed to strengthen your organization’s cyber defenses. These could include mandatory security measures, necessary response plans, and other best practices to reduce the risk of cyberattacks. Ignoring these terms can jeopardize your coverage and leave you vulnerable.

Since every cyber insurance policy is different, if there’s any confusion or doubt, always contact a professional for assistance. Contacting the insurer is a great way to get further information. Also, an IT company can provide expert insight into cybersecurity requirements, making compliance easier. Don’t take risks or cut corners. To get the most out of our cyber insurance, always partner with IT professionals for your cybersecurity needs.

If you need help with meeting the requirements of your cyber insurance policy, get in touch through our contact form or call us at +1 (800) 297-8293

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