Cyber Insurance: Fine Print vs. Real Protection

Coverage clauses, exclusions, and traps that quietly void your payout.

Why this matters

Most CEOs assume “we’re insured” equals “we’re safe.” But insurers are rewriting policies faster than IT teams can adapt. Knowing what’s not covered — and how to close the gaps — can be the difference between recovery and ruin.

1. The “Negligent IT” Exclusion

The game: Policy denies claims if you “failed to maintain reasonable cybersecurity.”
The setup: “Reasonable” is undefined — and insurers can interpret any lapse as negligence.
Counterplay:

Maintain written IT policies and patch logs.
Document annual risk assessments.
Ask broker to define “reasonable” in writing or attach your cybersecurity checklist as an addendum.

2. The Multi-Factor Mirage

The game: Coverage requires MFA — but only if enforced for all accounts. Miss one VPN user and the payout dies.
Counterplay:

Run quarterly MFA compliance reports.
Enforce MFA at the identity-provider layer, not app-by-app.
Request “best efforts” language instead of “full compliance.”

3. Vendor Blame Transfer

The game: If a breach involves a third-party system, the insurer says “Not our problem.”
Counterplay:

Demand third-party liability inclusion (“service provider acts or omissions”).
Obtain vendor COIs listing your company as additional insured.
Ask for a “failure of outsourced service” endorsement.

4. The Ransomware Ransom Limit

The game: Policy caps extortion payments far below market ransom demands.
Counterplay:

Confirm ransom sublimit covers at least 25% of total coverage.
Negotiate separate limits for negotiation, recovery, and extortion response.
Test backups so ransom decisions are optional, not forced.

5. The “War Exclusion” Workaround

The game: Insurer classifies major cyberattacks (e.g., nation-state) as “acts of war.”
Counterplay:

Negotiate carve-outs for “non-declared cyber hostilities.”
Reference Lloyd’s 2023 model wording for acceptable definitions.
Add “government-sponsored attacks” coverage if available.

6. The Hidden Waiting Period

The game: Policy has a 12–24 hour “waiting period” before coverage kicks in — your most expensive downtime window.
Counterplay:

Negotiate waiting period to ≤ 6 hours.
Ensure coverage begins at detection, not only at claim filing.
Keep 24/7 detection and alerting documented.

7. The Legal Panel Trap

The game: You must use insurer-approved counsel and responders — often slow or unfamiliar with your environment.
Counterplay:

Pre-approve your preferred incident response and legal teams.
Add them to the policy schedule before renewal.
Confirm retainers are reimbursable.

8. The Data Restoration Disconnect

The game: Coverage pays for data recovery but not for rebuilding apps/systems.
Counterplay:

Add “system rebuild and reconfiguration” language.
Confirm cloud platforms are covered, not just on-prem servers.
Keep hardware replacement on a separate line item.

9. The “Sub-Limit Swarm”

The game: Fine print divides your $1M into many $50–$100K caps that won’t cover real-world costs.
Counterplay:

Request a single aggregate limit where possible.
Map likely losses (forensics, legal, notifications) to ensure alignment.
Reject vague sub-limits like “social engineering” at 5% of policy.

10. The Renewal Revision

The game: After a minor claim, renewal premiums jump and coverage shrinks.
Counterplay:

Get renewal terms in writing before submitting any claim.
Bundle cyber with GL to dilute single-claim impact.
Use a broker who shops all carriers annually.

CEO Mini-Checklist

Cyber policy reviewed with IT & legal, not just finance.
MFA enforced and logged enterprise-wide.
Third-party liability coverage confirmed.
Waiting period ≤ 6 hours.
War exclusion language negotiated.
Preferred IR and legal firms pre-approved.
Data/system rebuild coverage included.
Annual benchmark against 3 peer firms.

Final Word

Cyber insurance isn’t protection — it’s a contract. Read it like one. When you treat your insurer as another vendor to negotiate, not a safety net to trust, you control the narrative when disaster strikes.