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Cyber Warranty v. Cyber Insurance

Updated: Oct 3, 2023

The number of cyber crimes and attacks is rising rapidly (Adlumin’s latest report highlights a 20% surge in security threat detections), risking digital assets, sensitive information, and your company’s reputation. The need to protect yourself and your clients against these threats has led to the adoption of two key tools: Cybersecurity Insurance and Cybersecurity Warranties. While both are purposed to strengthen cyber defense, their approach to protection differs:
Cyber Insurance vs Cyber Warranty

Cyber Insurance
Cybersecurity insurance (AKA cyber insurance, cyber liability insurance, or cyber risk insurance) provides financial protection and assistance to organizations in the event of a ransomware attack, data breach, or any other form of cyberattack. It is designed to address the frequency and complexity of cyber threats and the potential financial losses that can result from them. Organizations purchase a contract where the organization’s liability for financial damages is minimized, alleviating the overall consequences if an incident occurs, including but not limited to:
Financial protection against losses
Assistance in incident response and recovery
Access to specialist resources and expertise
Cyber Warranty
A cybersecurity warranty or cyber warranty can be described as when a provider guarantees they will pay a certain amount if their customer experiences a breach or incident. The purpose is to instill confidence in customers that their product or service has undergone rigorous testing and meets security standards. It helps mitigate the risks associated with cyberattacks and provides a form of assurance that the provider will take responsibility in the event of a security breach.

The conditions for a warranty vary based on the provider; some will expect the customer to abide by a set of security standards to be covered by their contract, or some expect the customer to prove that they were using the product or both. The losses a warranty can cover can vary, but they are typically a set amount.

Legal Liability: The warranty may cover the costs of letting the individuals affected by a data breach know and the legal expenses related to potential lawsuits.

Business Interruption: The warranty may cover the losses resulting from business interruption, including revenue loss, extra expenses incurred, and reputational damage.

Compliance Event: If a compliance event results in a breach of applicable regulations or standards, a cybersecurity warranty may cover the costs of fines and penalties imposed by regulatory authorities.

Ransomware/Business Email Compromise: Ransomware, including payouts for ransoms or business email compromise, resulting in financial loss.

Understanding the Fine Print
While cybersecurity warranties can function well with cybersecurity insurance, they are not alternatives for each other. Instead, they are complementary. Warranties have more limitations than insurance, but they fill in the gaps in situations where insurers won’t pay out. For example, having a cybersecurity warranty in place may assist in reducing insurance premiums. They are both tools designed to mitigate the financial risk associated with cyberattacks and data breaches.

While cybersecurity insurance and warranties serve different functions, they go hand in hand with a comprehensive risk management strategy. Cybersecurity insurance helps organizations transfer the financial risks associated with cyber incidents to an insurance provider, while warranties provide an additional layer of assurance that the products or services being used have met certain security standards. For example, if a breach occurs despite the organization implementing robust cybersecurity measures, cybersecurity insurance and warranties can cover the costs of incident response, legal expenses, and any financial losses. Together, they can help organizations mitigate potential financial losses and give them peace of mind knowing that they have protection against cyber threats.

The Ultimate Protection Complement

By combining cybersecurity insurance and warranties, organizations can ensure comprehensive coverage and minimize their financial exposure in the event of a cyber incident. It is important for organizations to carefully assess their cybersecurity risks, evaluate the warranties provided by vendors, and work with insurance providers to customize a cybersecurity insurance policy that suits their specific needs and risk profile.
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