Imagine thinking your cyber insurance policy will cover a breach—only to find out your claim has been denied. Now, you’re responsible for millions in damages. Could this happen to your business?
Cyber insurance has become a critical safeguard against financial loss in the wake of cyberattacks, data breaches, and regulatory penalties. Many businesses assume that simply having a policy means they are fully protected. However, this false sense of security often leads to devastating financial consequences when claims are denied.
Most organizations fail to realize that cyber insurance is not a guarantee—it’s a contract based on strict security requirements. If a business cannot prove that it continuously implements, maintains, and documents the security measures outlined in its policy, insurers may reject claims outright. This leaves the organization not only responsible for breach recovery costs but also vulnerable to lawsuits, compliance fines, and reputational damage.
Understanding why cyber insurance claims get denied is crucial for protecting your business. This article takes a deeper look at the hidden risks of self-attestation, the compliance missteps that lead to denied claims, and the proactive strategies your organization must implement to ensure coverage.
The Hidden Risks of Cyber Insurance Self-Attestation
When applying for cyber insurance, businesses are typically required to complete a self-attestation questionnaire. This form asks them to confirm that they have implemented critical cybersecurity measures, such as:
- Firewalls and endpoint protection
- Multi-factor authentication (MFA)
- Data encryption and secure backups
- Employee cybersecurity training
- Incident response and disaster recovery plans
Many organizations unintentionally misrepresent their security posture by checking boxes without fully understanding the technical and operational requirements. Others may have implemented these controls at one time but failed to maintain or update them properly. This creates a significant risk when a cyber incident occurs.
A Real-World Example: When Cyber Insurance Failed
In 2023, a mid-sized financial firm suffered a ransomware attack that locked them out of their systems, disrupting operations for over a week. The company believed it was covered under its cyber insurance policy and immediately filed a claim.
However, during the post-breach investigation, the insurer found several compliance gaps that invalidated the claim:
- Multi-Factor Authentication (MFA) was only applied to certain accounts, not enforced across all critical systems as the policy required.
- The company had checked the box for regular vulnerability scans in its self-attestation but had not actually conducted one in over a year.
- Employee cybersecurity training was documented but not consistently implemented, leaving key staff members unaware of how to respond to phishing threats.
Because of these misrepresentations and non-compliance issues, the insurer denied the $2.5 million claim, leaving the firm to cover recovery costs on its own. In addition to the ransom payment, they faced regulatory fines for failing to meet industry security standards, ultimately leading to severe financial and reputational damage.
The Lesson? Self-attestation does not equal compliance. Businesses must continuously validate their cybersecurity measures to ensure insurance claims hold up when it matters most.
Why Cyber Insurance Claims Get Denied
Even businesses that believe they are compliant may be caught off guard when an insurer investigates a claim. Once a claim is filed, insurance providers conduct a detailed investigation to assess whether the business was truly compliant with the policy’s security requirements.
Common reasons for denied claims include:
- Non-Compliance with Security Controls – Stating that security controls are in place but failing to implement them correctly.
- Inadequate Incident Response Plans – Lack of a tested, well-documented response strategy.
- Failure to Maintain Compliance Standards – Falling short of regulatory obligations such as CMMC, HIPAA, or PCI-DSS.
- Insufficient Documentation – Insurers require clear documentation of security controls, employee training, risk assessments, and incident response planning. If businesses fail to maintain thorough records, proving compliance after a breach can be nearly impossible, leading to a denied claim.
Insurer Investigations and Retroactive Compliance Checks
Even if businesses believe they are compliant at the time of filing a claim, insurers look deeper. One often-overlooked factor is the timeline of the breach. If an insurer determines that the attack actually began weeks, months, or even years before it was detected, the business must prove that it was compliant at that point in time—not just at the time of the claim.
For example, if a company experiences a breach today but forensic analysis reveals that attackers first gained access six months ago, the insurer will require evidence that all security controls, employee training, and compliance measures were in place at that time. If gaps existed—even if the company is currently compliant—the claim could be denied or, in some cases, the entire insurance policy revoked for misrepresentation.
This reinforces why continuous compliance, security monitoring, and detailed documentation are critical—not just for regulatory purposes, but for ensuring insurance coverage holds up when it’s needed most.
Strengthening Your Cybersecurity and Ensuring Coverage
The best way to ensure your cyber insurance claim isn’t denied is to proactively strengthen your cybersecurity posture. Implementing these key strategies will help protect your business and maintain compliance with insurer expectations:
- Conduct a Cyber Insurance Readiness Assessment
A comprehensive review of your cyber insurance policy, security controls, and compliance status can reveal gaps that need to be addressed before an incident occurs. - Implement Continuous Monitoring and Security Audits
Regular vulnerability scans, penetration testing, and compliance audits ensure that your security controls remain effective and up to date. - Maintain Detailed Security Documentation
Insurance providers require proof of compliance. Keep records of security measures, employee training logs, incident response plans, and network activity. - Align with Industry Best Practices
These frameworks provide structured guidelines to help businesses implement and sustain security controls that align with insurer expectations and regulatory requirements:- NIST Cybersecurity Framework
- CIS Controls
- ISO 27001
- Work with Compliance and Cybersecurity Experts
Navigating compliance and cybersecurity requirements can be complex. Partnering with experienced professionals can help ensure your organization meets and exceeds insurance requirements, reducing the risk of denied claims.
Don’t Let Assumptions Put Your Business at Risk
A cyber insurance policy is only effective if your business meets the security standards it requires. Instead of assuming you are covered, take proactive steps to validate compliance, strengthen cybersecurity defenses, and document everything.
If your business isn’t sure whether it meets its insurance requirements, it’s time to assess your security posture. Are you truly covered?
Ensure Your Compliance with Sherpa
At Compliancy Sherpa, we specialize in helping businesses navigate the complex intersection of cybersecurity, compliance, and cyber insurance readiness. Our experts provide compliance assessments, security audits, and tailored solutions to ensure your organization meets industry regulations and insurer expectations.
- Identify security gaps before they become costly mistakes
- Strengthen your compliance with CMMC, HIPAA, PCI DSS, and more
- Gain confidence that your cyber insurance claim won’t be denied
Cyber insurance is supposed to provide peace of mind, but only if you can prove compliance. Let’s make sure your business is protected—contact us today.
