6 cybersecurity pitfalls to avoid

Faced with ever-increasing cyber threats, businesses are increasingly turning to cyber insurance to address the potentially severe financial damage that a successful attack can cause. Unfortunately, cybersecurity presents its own risks, especially for leaders who tend to pay more attention to evolving threats than to the fine print of insurance.

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Sharon Polsky, president of the Privacy and Access Council of Canada, an organization dedicated to advancing the information access, information privacy and data protection profession, notes that several common omissions and gaps in cybersecurity can lead to a sense of complacency that can limit or even negate the perceived benefits of a policy.

Check your policy — and your assumptions about it — for these six common cybersecurity pitfalls.

1. You assume that cyber insurance covers all risks. In reality, many insurance policies offer narrow definitions, hidden exclusions, or strict terms that can leave organizations exposed after a breach. Before committing to a specific insurer, consult with an attorney experienced in cyber insurance policies.

2. Misinterpreting the fine print regarding coverage, disruptions, or threats. It’s important to remember that the language contained in cybersecurity policies generally favors the insurer, not the insured. Furthermore, “threat coverage” may only refer to threats that were known at the time the policy was issued, leaving new types of threats that emerge during the coverage period uninsured.

3. Ignoring hidden limits on certain types of losses. You may think your policy will cover all cyberattack losses, but a look at the fine print may reveal that it is filled with exclusions and guarantees that cannot realistically be met, especially in areas like social engineering, ransomware, and business interruption. A policy with hidden limits creates a false sense of security.

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4. Not aligning your security strategy with the fine print of the policy. If your security isn’t up to the standards of the policy — and that includes things like multi-factor authentication, regular backups, and endpoint scanning — your claim could be denied outright. Many businesses think they’re completely secure, but when they file a claim, the insurer points out the fine print about security measures they didn’t know were required.

5. The retroactive date trap. The retroactive date clause may be the biggest cyber insurance pitfall, warns Paul Pioselli, founder and CEO of cyber insurance services firm Solace. “This clause voids coverage for any incident that began before the policy’s inception date, even if discovered months later. Given that hackers can remain undetected on a network for over 200 days on average, this loophole can, in some cases, render a brand-new policy useless,” he says.

6. Misunderstanding First-Party vs. Third-Party Coverage. Perhaps the biggest mistake an insurance seeker can make is not understanding the difference between first-party and third-party coverage and therefore not obtaining a policy that includes both. First-party cyber insurance refers to coverage for a business’s immediate losses and expenses following a cyberattack, such as lost revenue, public relations support, and expenses related to recovering lost data. Meanwhile, third-party cyber insurance is liability coverage that can step in to prevent a lawsuit or handle the costs associated with it if a business is sued by customers affected by a data breach.

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Examining known cybersecurity risks and potential claims scenarios can help a business gain a more complete picture of how a given cybersecurity insurance company can support them if they suffer a cyberattack.