Why cyber insurance is essential for every business

Susannah Fink

Legal Director and Amber Strickland, Principal Associate, Gowling WLG

Amber Strickland

Principal Associate, Gowling WLG

In today’s digital-first world, cyber threats are not just a possibility - they’re a daily reality. From ransomware and data breaches to system outages and reputational damage, businesses of all sizes face an ever-growing list of cyber risks. As these threats become more sophisticated, cyber insurance is emerging as a vital component of any organisation’s risk management strategy.

The benefits of cyber insurance

Cyber insurance helps businesses protect their financial health by transferring the risk of cyber incidents to a third-party insurer. While it can’t prevent an attack, it plays a crucial role in helping organisations respond quickly and effectively when one occurs. This includes access to forensic experts to contain the breach, support to restore systems and coverage for the costs incurred during and after the incident.

Importantly, the process of obtaining cyber insurance encourages businesses to assess their vulnerabilities and quantify the potential financial impact of worst-case scenarios. Insurers typically require a minimum level of cyber resilience before issuing a policy, prompting companies to strengthen their controls and crisis management protocols.

For suppliers, having cyber insurance can also serve as a mark of credibility. It signals to customers that the business has proactively identified and addressed systemic risks.

What does cyber insurance cover?

A comprehensive cyber policy typically includes both first-party and third-party cover:

First-party cover addresses direct costs incurred by the business:

• Business interruption: Covers loss of profit and increased operating costs during network downtime, usually for a defined period (e.g. 90–120 days). Coverage for supply chain-related incidents is increasingly common.
• IT forensic investigation: Pays for experts to identify and contain the breach.
• System restoration and data recovery: Helps restore affected systems and recover lost data.
• Breach response: Includes customer notifications, legal advice, call centre support, and credit monitoring services.
• Cyber extortion: Covers costs related to ransomware, including specialist consultants and, in many cases, the ransom payment.
• Reputation management: Funds PR support to mitigate reputational damage.

Third-party cover protects against legal liabilities:

• Data protection breaches: Covers legal defence and damages for non-compliance with regulations like GDPR.
• Defamation and intellectual property infringement: Useful for businesses with a strong digital presence or content-heavy platforms.
• Regulatory investigations: Covers legal costs if regulators such as the Information Commissioner’s Office (ICO) launch an inquiry.

What’s not covered?

Cyber policies have gaps in cover and exclusions that businesses should be aware of:

• Future loss of profit or share price decline due to reputational damage.
• Property damage, unless it affects computer equipment.
• Uninsurable fines and penalties, such as those from the ICO under GDPR (still a legal grey area).
• War-related cyber operations, depending on the policy’s war exclusion clause.
• Upgrades to systems post-incident, unless specified.
• Social engineering fraud, unless added as an optional extension. This type of fraud involves employees being tricked into transferring funds, often by someone impersonating a senior manager. Coverage may be limited and subject to specific conditions.

Why a standalone cyber policy is necessary

Many businesses assume their existing insurance policies cover cyber risks. However, property or general liability policies often exclude key elements such as data restoration, forensic support, or PR costs. Even when cyber risks are included, the definitions may be too narrow to apply in real-world scenarios.

A standalone cyber policy is specifically designed to address the unique challenges of cyber threats. It ensures that cyber claims don’t erode the limits of other essential policies and helps maintain insurability across the board.

Do cyber policies actually pay out?

Yes, they do. The cyber insurance market has become increasingly favourable for buyers, with improved pricing and more flexible underwriting. Insurers are more willing to offer quotes with less detailed information than in previous years. However, businesses must still demonstrate robust cyber controls and a clean claims history to secure the best terms.

Final thoughts

Cyber insurance is no longer a luxury - it’s a necessity. As digital threats continue to evolve, having the right cover in place can mean the difference between swift recovery and lasting damage. It’s not just about protecting data; it’s about safeguarding your business, reputation, and future.

For further reading on all things data and cyber, read Gowling WLG's Data and Cyber School series.