Why Your Cyber Insurance Might Not Pay Out After a Breach
Many small business owners assume that a cyber insurance policy guarantees a safety net after a breach. Unfortunately, that’s not always the case. We’ve seen too many organizations shocked to learn that their claim was denied, often when they needed it most.
Here’s why your payout might never come, and how you can avoid being left with the bill.
1. You Didn’t Meet the Security Requirements in the Policy
Most cyber insurance carriers require that you maintain specific security measures—such as multi-factor authentication (MFA), endpoint protection, data backups, or employee cybersecurity training.
If you cannot prove these safeguards were in place before the breach, the insurer can deny your claim. We’ve worked with businesses who had antivirus software but lacked MFA; their insurer called it “non-compliance” and refused coverage.
Tip: Review your policy requirements today. Have your IT team or a trusted partner verify that every control is in place and documented.
2. Your Incident Response Was Not Immediate or Compliant
When an attack happens, speed matters. Many policies require that you notify the carrier within hours, preserve forensic evidence, and follow specific steps. Delays or improper response procedures—like wiping infected systems before a forensic snapshot—can void your claim.
We’ve seen this happen in ransomware cases. Carriers often demand that systems remain untouched for 30–45 days for forensic analysis. Without cloud-based failover systems, this downtime can cripple your business.
Tip: Build an incident response plan that includes your insurance carrier’s reporting and evidence requirements. Test it regularly.
3. Your Coverage Excludes Certain Attack Types
Some policies exclude coverage for social engineering, insider threats, or certain types of ransomware. Others may limit coverage if the attack originated from an unmanaged device or a vendor’s system.
Tip: Know exactly what your policy covers and what it doesn’t. If there are gaps, address them with additional coverage or stronger internal controls.
4. You Couldn’t Prove You Took Reasonable Precautions
Cyber insurance is meant to cover the unexpected—not neglect. If you can’t demonstrate regular patching, vulnerability scanning, and backups, the insurer can argue you failed to take “reasonable care.”
Tip: Maintain clear, timestamped reports of patching, endpoint protection, phishing tests, and backup verifications. Insurers love documentation.
5. The Loss Exceeded Policy Limits or Sub-Limits
Even if your claim is approved, policy sub-limits can dramatically reduce your payout. For example, you may have $1 million in total coverage, but only $100,000 for ransom payments or $50,000 for PR expenses.
Tip: Understand your sub-limits. If they’re too low, negotiate increases before you need them.
How to Protect Your Business and Keep Your Coverage Valid
Cyber insurance is not a substitute for a strong security program—it’s a financial safety net that depends on your ability to prove you’ve done your part.
Solve iT helps small businesses stay in compliance with their cyber insurance policies by:
- Implementing and documenting all required controls
- Conducting ongoing vulnerability scans and phishing simulations
- Providing detailed, audit-ready reports for insurers
- Designing incident response plans aligned with policy requirements
- Offering cloud-based recovery systems that minimize downtime
You pay for cyber insurance because you want peace of mind. Don’t let a missed control or a slow response leave you holding the bag after a breach.
Book your free threat assessment today.
We’ll review your current safeguards, map them against common insurance requirements, and identify any gaps that could put your payout at risk.