Why paying the premium is only half the equation — and why continuous oversight and clear reporting hold the missing piece.
The ransomware hits at 2am. Data is exfiltrated. Operations grind to a halt. Your team scrambles, invokes the incident response plan, and — with some relief — someone in the room, likely the CFO, reminds everyone: “At least we have cyber insurance.”
The Board had approved the premium. Leadership assumed the organisation was covered. No one had told them otherwise — at least not in terms they could act on.
And therein lies the problem. For example, a Key Risk Indicator flagging unpatched systems may have been reported — perhaps even rated at moderate risk — but without explicitly calling out that some of these were related to exploitable vulnerabilities sitting beyond the standard remediation timeframe (typically 30 days for high-severity findings under most patch management policies). Without that specific linkage to the insurance policy conditions, leadership had no reason to treat it as anything more than a routine operational metric.
As far as the Board and CFO were concerned: the premium was paid, the box was ticked, and the safety net was in place.
That relief may be dangerously misplaced.
According to Fitch Ratings, nearly one in four cyber insurance claims filed in 2024 were rejected for failing to meet coverage requirements. Other industry data puts that figure even higher — with some sources suggesting a rejection rate exceeding 40%, meaning nearly half of businesses that file a claim receive no payout. For cyber security and GRC professionals, this is not an academic problem. It is a material risk hiding in plain sight.
The hard truth is this: a cyber insurance policy is only as strong as the controls that underpin it. And right now, many organisations are paying premiums for coverage they would not actually receive.
What Insurers Actually Require — And What Gets Missed
Cyber insurance policies for financial institutions routinely mandate a specific set of IT and security controls as conditions of coverage. These are not optional recommendations — they are contractual obligations. Falling short of any one of them can void your claim entirely.
These controls span all three lines of defence. The first line — Cyber security, IT operations and business functions — must implement and maintain them day to day. The second line — risk and compliance — must monitor, report on, and gaps presented in terms that are explicit, actionable, and meaningful to leadership And the third line — internal audit — must independently verify that controls are not just designed correctly, but operating effectively in practice.
The most commonly mandated controls include but not limited to:
- Multi-Factor Authentication (MFA) — required for privileged access, remote access, and increasingly, all user accounts across all systems without exception
- Endpoint Detection and Response (EDR) — with defined log retention periods (typically 90 days minimum)
- Privileged Access Management (PAM) — governing administrative and service accounts with full audit trails
- Patch and vulnerability management — with documented remediation timeframes and evidence of compliance, particularly for critical and high-severity findings within 30 days
- Immutable and tested data backups — offline or air-gapped, with regular restoration testing evidenced and logged
- Incident response planning — including tabletop exercises and documented BCP/DR tests conducted at least annually
- Third-party and supply chain risk management — extending policy obligations to critical vendors and processors
- SIEM and continuous monitoring — with defined coverage across critical systems and alert triage processes
Real-World Consequences: When the Claim Gets Denied
These are not hypothetical scenarios. The following cases are a matter of public record — and each carries a lesson for those who assume that documented policies translate into insurer-approved control environments.
City of Hamilton, Ontario (2024)
In February 2024, the City of Hamilton fell victim to a ransomware attack that crippled approximately 80% of its network. When the organisation turned to its cyber insurance policy for the $18.3 million recovery bill, the claim was denied. The insurer’s forensic review found that Multi-Factor Authentication had not been consistently deployed across all systems. The technology was in place — but the coverage gaps were enough to void the policy. Having MFA was not sufficient.
Risk insight: Partial control implementation creates a false sense of compliance. From an insurer’s perspective, partial = non-compliant.
International Control Services vs. Travelers (2022)
In this widely reported legal dispute, Travelers sought to void the policy on the grounds that MFA had only been implemented for the firewall — not for the servers where the breach originated. The organisation believed it had satisfied the MFA requirement as stated in the application. The insurer’s post-incident review told a different story. The court sided with Travelers. The lesson: insurers read policy conditions literally, and forensic reviewers will examine every system, not just the primary access layer.
Risk insight: Control scope matters.
Example: implementing MFA only at the perimeter while leaving internal systems exposed creates a coverage gap that invalidates policy assumptions.
Cottage Health vs. Columbia Casualty
Following a data breach that exposed patient records, Columbia Casualty denied coverage under minimum required practices clauses, citing misrepresentation in the insurance application. Specifically, the insurer found discrepancies between the stated patching and vulnerability management practices and what was actually in place at the time of the breach. The application said one thing. The operating reality, uncovered under forensic scrutiny, was another. The case settled, but the reputational and financial damage had already been done.
Risk insight: Misalignment between policy attestation and operational reality introduces both financial and reputational risk.
Example: stating “critical patches applied within 30 days” while evidence shows systemic delays can be interpreted as misrepresentation.
The pattern across all three cases is consistent: any gap between what was declared and what was actually in place becomes grounds for denial. Post-incident is the worst possible time to discover that your control environment did not match your policy application.
Some Questions Worth Considering
Before your next Board report, cyber insurance renewal negotiation, or tabletop exercise, answer these questions with the rigour an insurer’s forensic team would apply:
- Have you read your cyber insurance policy line by line — not the summary, the actual policy — and mapped every control condition against your current operating state?
- Could you produce evidence of control effectiveness to your insurer within 72 hours of a claim submission request — not documentation that says the control exists, but evidence that it was working on the day of the incident?
- Is your vulnerability reporting to the Board and CFO specific enough to surface the insurance implications of partially implemented controls mandated in the policy?
- Has an independent review tested the controls specifically referenced in your policy — not just your broader control framework — within the last 12 months?
- Does your third-party risk programme extend your policy obligations to critical vendors and processors — or does a supplier breach leave you uninsured?
The Bottom Line
Cyber insurance is not a substitute for cyber resilience — it is a complement to it. But the relationship only works if the controls your policy depends on are genuinely in place, independently tested, and evidenced by all three lines of defence. For financial institutions operating under heightened regulatory scrutiny and increasingly sophisticated threat actors, the stakes of getting this wrong extend well beyond a denied claim.
Your premium buys you the right to make a claim. Your controls — and the continuous oversight and clear reporting you build around them — determine whether that claim is paid.
The next ransomware attack will be the worst time to discover that your policy was always conditional.
References
The following sources informed the real-world examples cited in this article. Readers are encouraged to review these resources and assess their relevance to their own control environments.
1. Prelude Security — Why Cyber Insurance Claims Get Rejected https://www.preludesecurity.com/blog/why-cyber-insurance-claims-get-rejected
2. ASi Networks — Why Cyber Insurance Claims Get Denied (2025 Guide) https://www.asi-networks.com/blog/why-cyber-insurance-claims-get-denied/
3. Slingshot Information Systems — Cyber Insurance Claims Denied: Common Reasons Explained https://www.slingshotis.com/blog/cyberinsurance-claim-denied/
4. Mitigata — Top Reasons Cyber Insurance Claims Are Denied https://mitigata.com/blog/reasons-cyber-insurance-claims-denied/
5. Cyber Management Alliance — Why Do Cyber Insurance Claims Get Rejected? https://www.cm-alliance.com/cybersecurity-blog/why-do-cyber-insurance-claims-get-rejected
6. Fitch Ratings — Cyber Insurance Market Commentary (2024) https://www.fitchratings.com