Contingent Business Interruption Insurance for Cyber Events

In today's digital world, businesses face growing cyber risks that threaten operational continuity and financial stability. The increasing frequency and sophistication of cyberattacks—from data breaches to ransomware—can cause extended downtime, operational disruptions, and significant financial losses. As a result, obtaining robust cyber business interruption (BI) insurance has become essential for organizations.

Cyber BI insurance, offered through standalone cyber policies, provides financial relief by covering costs incurred from operational interruptions linked to technology breakdowns, such as data breaches, social engineering incidents, and ransomware attacks. This coverage can help businesses recoup expenses like lost income, wages, and extra operational costs.

For companies that heavily depend on third-party services for their digital functions, it's vital to also consider contingent business interruption (CBI) insurance. Cyber CBI insurance extends protection to cover losses from third-party disruptions, safeguarding against potential supply chain breakdowns from events like software vendor outages or cloud service failures.

This article explains cyber CBI insurance, its coverage details, and the essential benefits it offers.

Understanding Cyber CBI Insurance

Cyber BI insurance helps businesses recover from cyber incidents affecting their systems, whereas cyber CBI insurance covers disruptions resulting from third-party technology failures within an organization’s digital supply chain. This can include interruptions due to IT providers, vendors, and other critical suppliers. The primary difference is that cyber BI insurance applies to internal system issues, while cyber CBI insurance addresses third-party disruptions.

For example, if a business experiences a ransomware attack on its internal network that prevents access to its systems, cyber BI insurance can help cover the related costs. However, if a ransomware attack impacts the business's cloud provider, leading to prolonged system downtime and blocking access to crucial data, cyber CBI insurance would assist in covering similar operational expenses.

Cyber CBI policies often include certain exclusions and limitations. Here's a closer look:

• Specific Cyber Events and Third-Party Coverage

Cyber CBI policies typically define which cyber events and third parties are covered. For example, a policy might cover data breaches but exclude service disruptions from basic infrastructure providers, like internet or utility companies.

• Exclusion of Non-Attack-Related System Failures

Insurers often differentiate between security and system failures. While cyber CBI coverage typically includes losses from security failures, such as cyberattacks, it may exclude system failures caused by human error or technical malfunctions. Some insurers might offer limited coverage for these non-attack incidents, subject to specific sub-limits.

• Waiting Periods for Coverage Activation

Cyber CBI insurance often requires a waiting period before coverage begins. This period, usually between 6 to 12 hours, mandates that businesses absorb initial costs before the insurance takes effect.

• Retention and Deductible Requirements

Most policies outline retention and deductible requirements, stipulating out-of-pocket expenses before coverage activates. In some cases, policies may substitute waiting periods with retention requirements, or specify an additional deductible after the waiting period ends.

Key Benefits of Cyber CBI Insurance

Cyber CBI insurance can serve as a crucial safeguard, offering several advantages for businesses navigating a digitally reliant landscape:

• Enhanced Financial Stability

By covering losses linked to third-party cyber incidents, cyber CBI insurance helps maintain financial stability, even in costly cyberattacks. With the rising frequency and costs of cyber incidents, businesses benefit greatly from a financial buffer during such events.

• Protection Against Expanding Supply Chain Risks

Modern businesses rely increasingly on third-party providers for essential digital operations, creating greater exposure to supply chain disruptions. High-profile cyberattacks on supply chains, such as SolarWinds, Kaseya, and Colonial Pipeline, emphasize these risks. Research by the Uptime Institute reveals that 80% of businesses experienced technology outages since 2020, with 70% of downtime linked to third-party incidents. Cyber CBI insurance mitigates the financial impact of these disruptions, which often fall outside a company’s control.

• Peace of Mind Amid Rising Cyber Threats

Cyber CBI insurance can alleviate concerns over third-party cyber risks and potential associated costs. Alongside robust risk management strategies and cybersecurity protocols, this coverage provides peace of mind by helping businesses navigate even the most challenging third-party disruptions.

Conclusion

Cyber CBI insurance ensures resilience during cyber incidents that disrupt digital supply chains. Understanding the protection and benefits it offers can help organizations better assess their unique needs and customize their cyber CBI policies accordingly.

For more information on cyber risk solutions tailored to your business, contact us today at 909.466.7876.

Also, discover Cybercriminals' Methods, and How to Protect Your Business and learn about The Risks of Collecting Biometric Data.