Cyber Insurance: Why Pay-outs Can Be Refused

• by Anthony Orjally
• Advent IM Blog

Many organisations see cyber insurance as a financial safety net when a data breach or ransomware attack occurs. But cover only works if the policy conditions are met.

Cyber insurers are under pressure from the growing volume and cost of claims, and they respond by enforcing their terms very closely. A common reason for refusal is when a business has stated that certain security measures were in place – multi-factor authentication, patching cycles, or an incident response plan – but the post-incident investigation shows that these were missing or incomplete. From the insurer’s point of view, that’s a breach of contract.

Exclusions create another risk. Several major cases have shown insurers relying on “state action” or “war-like event” clauses to refuse claims linked to high-profile attacks. Others have been disputed around whether business interruption really counts under the definitions in the policy. The outcome is often long, expensive disputes that still leave the insured without cover when it is most needed.

So what should boards and senior leaders take from this?

• Cyber insurance is not a substitute for strong security or compliance. It should be the last line of defence, not the first.
• Organisations need to be clear on exactly what the policy demands. This means reading beyond the headline and understanding the conditions, exclusions, and definitions.
• Continuous assurance is essential. It isn’t enough to write down that MFA or patching is in place; you need to be able to prove it with evidence if challenged.
• Policies need to be seen as part of a wider resilience framework, sitting alongside governance, supplier oversight, business continuity, and technical security controls.

Cyber insurance is still valuable, but only when approached with open eyes. The real safety net is the combination of robust security governance and accurate, provable compliance with the commitments made in your policy. Without that, the net may not be there when you fall.

Written by Ellie Hurst, Commercial Director.