Cybersecurity insurance is a specialized form of insurance designed to protect businesses and individuals from the financial consequences of cyber incidents. Unlike traditional business insurance policies, cyber insurance specifically addresses losses related to digital attacks, data breaches, system failures, and other technology-related incidents. It provides coverage for both the direct costs associated with a breach and the indirect expenses that often follow, such as legal fees, notification costs, and business interruption.
According to research published in the International Journal of Information Security, "cyber insurance is emerging as an important tool to protect organizations against cyberattack-related losses." When an organization experiences a covered cyber incident, the insurance policy helps pay for the necessary response measures, recovery efforts, and legal obligations that arise as a result of the breach.
Cyber insurance policies cover a wide range of scenarios and expenses. First-party coverage protects the policyholder directly and includes costs like data recovery, system restoration, and business interruption losses when operations are disrupted by a cyber incident. It also covers notification expenses, as organizations are often legally required to inform affected individuals when their personal data has been compromised.
Additionally, many cyber insurance policies cover forensic investigation costs, which are needed for determining how a breach occurred and what data was accessed. This investigation is needed for insurance claims and compliance with regulatory requirements and for preventing future attacks.
Third-party coverage protects against liability claims from others. This includes legal liability resulting from privacy violations, regulatory fines and penalties, and claims from customers or business partners who suffered losses due to the insured organization's cyber incident.
Learn more: Consequences of a security breach
According to "Cyber Insurance Statistics 2025: Costs, Coverage & Emerging Risks" published by SQ Magazine, ransomware tops the list, accounting for 29% of all cyber insurance claims and making it the most costly cyber threat. The financial impact is worth noting, with ransomware payouts averaging $492,000 per incident in 2025. The average cost of a data breach has reached unprecedented levels, with SQ Magazine reporting that the average claim payout for cyber incidents has risen to $228,000 in 2025. These expenses include response and recovery efforts, legal fees, regulatory fines, and lost business opportunities. For small and medium-sized businesses, a single major breach can threaten the viability of the entire organization.
The financial impact extends beyond immediate operational costs. Business email compromise attacks in the United States cost approximately 1.7 billion dollars in 2019, and by 2025, SQ Magazine reports that business email compromise now accounts for 15% of all cyber insurance claims, showing the losses organizations face from cyber threats. Beyond the financial toll, cyberattacks damage customer trust and brand reputation. Recovery from reputational harm can take years and require investment in rebuilding customer confidence. Cybersecurity insurance helps organizations manage these multifaceted risks by ensuring they have adequate resources to respond effectively to incidents.
Furthermore, many business partners, customers, and regulators now require organizations to maintain adequate cyber insurance coverage. This has become an industry standard for companies handling sensitive personal or financial information. Organizations without cyber insurance may find themselves at a competitive disadvantage or unable to secure certain contracts.
Red also: Study: Healthcare data breaches change the way patients seek care
Insurance professionals face challenges in assessing cyber risk. According to "The Data that Drives Cyber Insurance: A Study into the Underwriting and Claims Processes," professionals note that "a lot of the decision-making process is unquantifiable because it's to do with the interview process and the responses you're getting from the CISO." This human element adds challenges to underwriting, requiring insurers to balance thoroughness with practicality. As one claims specialist observed, "There's a bit of a commercial trade off here on the amount of detail you go into the application form because if you ask too many questions, it's too onerous, but if you don't ask enough questions it comes back to bite you."
An insight from the research reveals that the mere presence of security controls provides limited assurance. The study emphasizes that "it might tick a box on the proposal form that says we got automated cyber awareness training, brilliant, but it doesn't then say that everyone's failing it." Organizations need not just security controls, but security controls that actually work.
Insurance professionals emphasize how organizations respond to incidents rather than simply focusing on prevention measures. The perspective among insurers is that, "It's not if it's when, it's how you handle post breach. Have you got a PR statement prepared? How do you minimise the damage?" This shows the industry's recognition that breaches are becoming inevitable, making preparedness and response capabilities important factors in risk assessment.
According to the study, insurance professionals recognize that "the thing about cyber is that if a company hasn't made any changes or improvements in 12 months, that should lead to a premium increase because the risk is very different." This reflects the reality that cyber risk doesn't remain static, yet many organizations and insurers struggle to keep policies updated to reflect these changes.
The research also reveals the complexity of understanding systemic risk across an insurer's portfolio. One actuary noted the challenge: "If you're an insurance company and you've written a thousand policies, the key issue for us is getting what services they are using, what providers, do they all have Amazon Web Services, and how reliant are they on it." This interconnectedness of organizational infrastructure creates risks that extend beyond individual organizations.
Research shows "the underwriting process in cyber insurance is more complex compared to other insurance products," making it essential for organizations to thoroughly prepare their security documentation. Insurance companies expect policyholders to maintain reasonable security standards and will often require evidence of adequate security practices before issuing coverage. Policies frequently contain exclusions for breaches resulting from negligence or failure to implement basic security measures.
Premium costs vary based on factors including organization size, industry, revenue, security measures in place, claims history, and the amount of coverage sought. SQ Magazine reports that the average premium for a US mid-sized firm has climbed to $17,600 annually as of 2025, representing a 12% year-over-year increase. Smaller organizations with strong security practices may pay relatively modest premiums, while larger enterprises with more extensive data operations pay more. Healthcare organizations face high premiums, as the industry accounts for 22% of all policy payouts in 2025 according to SQ Magazine, making it the highest-risk insured sector.
Additionally, cyber insurance policies contain deductibles and coverage limits. Organizations must review their policies to understand what is and isn't covered, as well as any conditions that must be met to maintain coverage.
It's worth noting that cyber insurance providers do more than simply pay claims. According to research in the International Journal of Information Security, "cyber insurance companies actively manage underlying cybersecurity risks beyond just receiving them." This means insurers often provide incident response services, risk assessments, and preventive guidance to help organizations strengthen their security posture.
However, the cyber insurance market faces unique challenges. Academic research highlights an important consideration, "cybersecurity risks are correlated because the same event can affect multiple organizations simultaneously." This correlation creates issues for insurers and can affect premium pricing. Additionally, researchers note that "a single cyber event is likely to incur concurrent claims from many insured organizations," which explains why cyber insurance operates differently from traditional insurance products.
Selecting appropriate cybersecurity insurance requires an assessment of an organization's specific risks. Factors to consider include the types of data the organization handles, the industry it operates in, its size and IT infrastructure, and regulatory requirements it must meet. A healthcare organization, for example, faces different cyber risks than a retail business and would need different coverage.
Organizations should work with insurance brokers who specialize in cyber insurance to understand their risk exposure and identify policies that appropriately address their needs. It's also wise to regularly review and update coverage as business operations change and new threats emerge.
Some policies may include insider-threat incidents, but coverage depends on the insurer and specific policy terms.
It may provide access to assessments and guidance, but it is not a substitute for meeting regulatory obligations.
No, some insurers limit or exclude ransom payments depending on legality, policy language, and geopolitical factors.
Yes, insurers can refuse claims if the organization didn’t maintain required security controls.
Coverage may apply, but it depends on the contract and how the breach affects the insured organization.