Nowadays, almost every successful business has an online presence of some kind, and that’s fuelling the increase in cybercrime. For that reason, most organisations of all sizes and across all sectors invest in cyber insurance to protect their business from cyber-attacks.
As a consequence, cyber insurance can be expensive and complex for both the insurer and the insured, and it’s becoming increasingly commonplace for cyber insurance claims to get rejected.
- In 2022, the cost of cyber insurance increased by 68%.
- From 2022 to 2023, 81% of cyber insurance claims arose from ransomware attacks.
- During that period, it’s estimated that around one-quarter of all cyber insurance claims were rejected or were only partially settled, largely due to exclusions in the coverage.
Read this guide to learn why so many cyber insurance claims get rejected and find out how you can prevent that from happening to your business.
Why you must comply with the terms of your cyber insurance
If you don’t comply with the terms of your cyber insurance policy, the consequences could be pretty serious.
If your business is the victim of a cyber attack, your insurer might refuse coverage, leaving you to bear the full burden. The insurer could even cancel the policy altogether or dramatically increase your premiums.
Reasons why a cyber insurance claim might be rejected
Here are some of the main reasons a cyber claim might be rejected.
Insufficient documentation
Probably the main reason for rejected cyber insurance claims is inadequate documentation.
Your insurer requires detailed evidence to support a claim, and that must be submitted to them within specified timescales. That documentation should include details of the cyber attack, steps taken to mitigate damage and any expenses incurred by your business or third-party associates.
If you don’t provide full, complete documentation, your claim could be rejected.
Poor cyber security measures
If the insurer deems that your organisation has not implemented satisfactory cyber security measures, your claim could be rejected.
Insurance providers generally expect their policyholders to have specific security protocols in place to protect them from cybercriminals. If the insurer can attribute the cyber attack to your negligence in failing to implement basic security protocols, they could deny your claim.
Non-disclosed existing vulnerabilities
An insurer will also deny a claim if they discover pre-existing systems vulnerabilities that you did not disclose at the time you took out the policy with them.
For that reason, you must be transparent about your business’s cyber security prevention measures at the time you take out the policy.
Policy exclusions
Cyber insurance policies have exclusions, so check your policy documents carefully to ensure they cover the costs of the main threats and risks to your company from cybercrime.
Fraudulent claims
If you try to exaggerate or falsify a cyber attack or data breach, your claim could be rejected, and you could also find yourself facing legal action for fraud.
The impact of a cyber claim rejection
The impact of a cyber insurance claim rejection on your business can be hugely significant, depending on the nature of the rejection, the circumstances and what specific terms and conditions are outlined in your policy.
Here are some potential consequences of a rejected cyber insurance claim:
Financial loss
The main purpose of cyber insurance is to give your business financial protection in the event of a cyber attack. If your claim is rejected, your business might have to bear the whole financial burden of the incident, including any cost related to data breaches, legal expenses, system repairs and regulatory fines.
Reputational damage
Cyber attacks can seriously damage your business’s reputation, and a rejected insurance claim could exacerbate the situation.
Your customers, investors and partners might view your business as unreliable and insecure, which could seriously damage trust.
Operational disruption
A rejected claim could result in operational disruption since your business might struggle to recover from the cyber attack. That could impact customer service, productivity and the overall continuity of your business operation.
Legal consequences
Depending on the circumstances surrounding the cyber attack, a rejected insurance claim can lead to legal disputes between your business and the insurance provider. Legal battles can be extremely costly and very time-consuming, adding to the overall impact of a cyber attack on your business.
Future coverage issues
If you have a cyber insurance claim rejected, that can make it more difficult for your business to obtain favourable cyber insurance coverage in the future. Insurance providers could view your organisation as high-risk, potentially resulting in restricted coverage terms and higher premiums.
How to reduce the risk of cyber claim rejection
There are several steps you can take to minimise your chances of rejected cyber claims.
First and foremost, you should maintain good cyber security practices to protect your business systems from attacks. Basic steps, including patching and updating your systems, putting in place strong security controls, and training your staff to spot social engineering attacks, are all essential.
The biggest cause of cyber attacks is human error. By holding regular cyber security drills and staff training initiatives, you can demonstrate your commitment to protecting your business to insurers and reduce the likelihood of a rejected claim.
Cyber Protection from Stanmore Insurance
Many cyber insurance claims are rejected because businesses lack good cybersecurity practices or fail to document incidents thoroughly. You must also check your insurance policy schedule to ensure you have the depth of coverage you’ll need to get your business up and running again following a data breach or ransomware attack.
You can help prevent claim rejections by training your staff in basic cybersecurity practices and ensuring you report incidents to your insurance company promptly and correctly. Our dedicated team is here to give you free advice on how to ensure your cyber insurance claim is paid in full. Contact us today to put your mind at rest.