Businesses rely heavily on technology to operate, stay connected and serve customers. But this also brings risks. A single cyber incident like a data breach, ransomware or system failure can disrupt operations, damage reputation and create unexpected costs. Even small mistakes such as weak passwords or outdated software can have major consequences. Cyber insurance policy helps protect your business financially and operationally, providing a safety net while you focus on recovery. This guide explains coverage, limits, exclusions and ways to reduce cyber risk.
What is cyber insurance and why is it required?
Cyber insurance, at times known as cyber risk insurance or cyber liability insurance, is an insurance policy which helps organisations limit the risks related to cyber risks and data breaches. It insures for expenses such as legal fees, notification fees, forensic investigation costs and possible lawsuits that may follow a cyber incident.
In today's increasingly connected world, cyber-attacks on any company can have damaging financial and reputational effects for company of any size. Cyber insurance can help businesses mitigate these risks and recover faster after a cyber incident. It's a safety net that could help organisations recover from a cyber-attack.
Cyber insurance policies coverage
Cyber insurance policies typically cover most expenses associated with a cyber incident. Key areas covered by cyber insurance include:
- Response to data breach: This includes costs for notifying affected parties, conducting a forensic investigation to identify the source of the breach and providing credit monitoring services to affected individuals.
- Cyber extortion: Cyber insurance can cover ransom payments and related costs in the event of a ransomware attack or other cyber extortion.
- Business interruption: If a cyber-attack interrupts business operations, cyber insurance can cover lost income and additional costs for maintaining operations.
- Legal fees lawsuits: Cyber insurance may cover legal defence costs in the event of a cyber incident-related lawsuit.
- Regulatory fines and penalties: Cyber insurance may cover the cost of regulatory fines a business incurs because of a data breach.
Limits on cyber insurance policies
Businesses need to understand that cyber insurance has coverage limits. These limits may vary by insurer and policy. This helps organisations evaluate how well their coverage is meeting needs and identify potential protection gaps.
Let us explore a few limits on cyber insurance policies
- Non-standard coverage: Not all policies are equal, and organisations will need different coverage based on their business type. For example, a policy covering confidential data will be required by companies in the healthcare sector. Moreover, some threats (like data breaches) can be attributed to third-party partners not covered by the policy.
- Choice limits: Coverage of a company policy can affect management responses to cybercrime. For example, the policy might require consultation with certain third-party vendors, which could slow response time during a breach.
- False sense of security: Cyber Insurance is essential, but different from data protection and security. Organisations must realise that, beyond simply purchasing insurance, they must continually review their security systems, develop effective risk management and continuously improve their security to remain ahead of emerging cyber threats. And their IT teams should develop an effective incident response plan in case of future attacks.
Exclusions from cyber insurance policies
Cyber insurance policies provide important protection, but they also have specific exclusions that limit coverage. Common exclusions include unencrypted data, where insurers may deny claims if confidential information was not properly secured. Coverage may also exclude cyber events related to war or terrorism, which are generally treated as high-risk situations. Insurers typically exclude incidents involving criminal activity by the insured, such as deliberate harm caused by the company.
Deductibles of cyber insurance
A deductible is the amount a business must pay before the insurer covers the rest of the claim. For example, if a breach causes INR 50,000 in losses and the deductible is INR 2,000, the insurer pays INR 48,000.
Lower deductibles increase premiums but reduce out-of-pocket costs, while higher deductibles lower premiums but raise potential expenses. Some policies may offer lower or zero-deductible options depending on the insurer and policy type. Always check the policy terms before assuming zero deductibles are available.
Cyber insurance in India
Cyber insurance awareness and demand in India have grown recently. It has become important for businesses as cyber threats increase and data protection laws, such as the Personal Data Protection Bill, move closer to implementation.
Cyber insurance helps protect a company’s reputation and assets by providing financial support after a cyber-attack. While it offers a safety net to manage losses, operational and reputational impacts may still occur.
Best practices to minimise cyber risks
To reduce cyber risks, maintain strong digital habits by keeping systems, software, and devices updated. Use strong passwords, enable multi-factor authentication, and train employees to spot phishing and suspicious activity. Back up critical data securely, protect networks with firewalls and antivirus tools, review access controls, conduct audits or simulations, and maintain a clear incident response plan for quick action during a breach.
Note: The lists in this article are an indicative overview. Please read the policy wordings for the complete list of inclusions/exclusions.
Conclusion
Cyber risks are a real and growing part of doing business today. Even minor incidents can disrupt operations, damage customer trust and lead to costly financial losses. Cyber insurance can ease this burden by providing financial support and helping your business recover faster. Pairing insurance with strong security practices, regular employee training and policy reviews creates a proactive strategy that protects both operations and reputation. Taking these steps helps your business stay resilient, prepared and secure in an evolving digital landscape.
FAQs
1. What sorts of incidents does cyber insurance cover?
Cyber insurance policies usually cover data breaches, cyber extortion, business interruptions from cyber-attacks, legal costs and suits from cyber-attacks and regulatory penalties and fines from data breaches.
2. How often should a business update its cyber insurance policy?
It is recommended to review and update cyber insurance coverage at least once a year, as cyber risks, business operations, and regulatory requirements change frequently and can alter a company’s exposure.
3. Can home-based business also buy cyber insurance?
Home-based businesses face similar cyber risks as larger firms, and cyber insurance can cover data breaches, ransomware, and online fraud.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the topic featured in the article. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.