Avoiding Claim Denials

A Shocking 4 Out of 10 Cyber Insurance Claims Are Denied

Cyber insurance is a vital safeguard for businesses navigating today’s escalating cyber threats, yet a staggering 44% of claims are denied, according to Advisen’s Cyber Claims Report. The main reason? Businesses fail to meet the stringent security standards required by their policies. To help you avoid this pitfall, let’s dive into why claims are rejected and how a proactive cybersecurity approach can ensure your claims are approved when you need them most.

Why Cyber Insurance Claims Are Denied

Inadequate Security Controls: Many businesses underestimate the need for comprehensive cybersecurity measures. Weaknesses in areas like network security, access controls, or incident response can violate policy requirements, leaving claims vulnerable to denial. Insurers expect robust defenses, and gaps in your security posture can cost you coverage.

Misunderstanding Policy Requirements: Cyber insurance policies include specific security mandates, but businesses often fail to fully grasp these terms. Without clarity on expectations—such as implementing encryption or conducting regular risk assessments—you may inadvertently fall short, resulting in rejected claims. You should also be reviewing your policy with your IT Service Provider to ensure that they are providing solutions to meet the policy’s requirements.

Prioritizing Cost Over Security: To cut expenses, some businesses skimp on cybersecurity investments, opting for minimal protections. This approach weakens defenses, increases breach risks, and signals to insurers that you’re not meeting their standards, jeopardizing claim payouts. If you cannot afford everything today, put a multi-year plan in place to get to full protection.

Inaccurate Answers to an Insurance Questionnaire: With each cyber insurance policy, there is a questionnaire the business is asked to complete. Not responding 100% correctly can be a reason for denial. For example, you confirm you have Multi-factor Authentication on everything but you forgot about the company checking account or you don’t know about the DropBox application being used by your Marketing Department. It is the little things that can cause disaster.

Key Security Controls to Boost Claim Success for SMBs

For small and medium-sized businesses (SMBs), implementing adequate security controls is critical not only for preventing cyberattacks but also for meeting the requirements of cyber insurance policies. Below are essential security controls that can improve your chances of having a claim paid out:

• Multi-Factor Authentication (MFA): MFA adds an extra layer of security by requiring multiple forms of verification (e.g., password and a mobile app code) for access to systems and data. Many insurers mandate MFA for critical systems, as it significantly reduces the risk of unauthorized access from stolen credentials.
• Endpoint Detection and Response (EDR): EDR solutions monitor devices like laptops and servers for suspicious activity, enabling rapid detection and response to threats like ransomware or malware.
• Regular Patch Management: Unpatched software is a common entry point for cyberattacks. A robust patch management process ensures that operating systems, applications, and firmware are updated promptly to address vulnerabilities.
• Data Encryption: Encrypting sensitive data—both at rest and in transit—protects it from unauthorized access in the event of a breach.
• Incident Response Plan: A well-documented incident response plan outlines steps to detect, contain, and recover from a cyberattack.
• Network Segmentation: Segmenting your network isolates critical systems and data, limiting the spread of an attack.
• Security Awareness Training: Regular training helps employees recognize phishing emails, avoid risky downloads, and follow security best practices.
• Documentation: Policy and procedures play an important part in identifying what is acceptable for each role within the organization.
• Outside Resources: Most SMBs don’t have knowledgeable staff to provide guidance and leadership in all the above items. If you do not have the internal resources, work with an external resource.

How to Boost Your Cybersecurity and Ensure Claim Success

To avoid claim denials, businesses must prioritize cybersecurity and align with insurance requirements. Here’s how to get started:

• Focus on Employee Training: Human error is a leading cause of breaches. Regular, engaging training programs that teach employees to spot phishing attempts, use strong passwords, and follow security protocols can significantly reduce risks.
• Adopt Industry-Standard Frameworks: Implement frameworks like CIS (Center for Internet Security), NIST (National Institute of Standards and Technology), or ISO 27001 to build a structured cybersecurity program.
• Clarify Policy Terms: Review your insurance policy with your provider to understand its security requirements.
• Invest in Robust Defenses: Allocate resources to advanced tools like intrusion detection systems, endpoint protection, and continuous monitoring.

The high rate of cyber insurance claim denials underscores the need for businesses to take cybersecurity seriously. By investing in employee training, adopting industry standards, understanding policy requirements, and prioritizing robust defenses like MFA, EDR, and encryption, SMBs can minimize the risk of claim denials and ensure their insurance delivers when it matters most.

INFIMA has resources to help. Please schedule a call or reach out to sales@infimasec.com if you have any questions.