Cyber Insurance vs Cybersecurity: Do You Need Both?

A common misconception among Australian business owners is that cyber insurance reduces the need to invest in cybersecurity. The reality is the opposite: insurers are increasingly demanding evidence of security controls before they will offer coverage, and the businesses that get the most value from insurance are those that already have strong security practices.

What cyber insurance actually covers

Cyber insurance policies vary significantly, but most Australian policies cover some combination of:

• First-party costs: incident response fees, forensic investigation, data recovery, business interruption losses, ransomware payments (where legal)
• Third-party liability: costs arising from claims by customers or partners whose data was compromised
• Notification costs: expenses associated with notifying affected individuals under the Notifiable Data Breaches scheme
• Regulatory fines and penalties: in some policies, subject to limits
• Reputational damage: PR and crisis communications costs

What most policies do not cover: the underlying vulnerability that allowed the breach to occur, the cost of improving security after an incident, losses from unencrypted data where the insurer considers controls inadequate, or incidents attributable to known, unpatched vulnerabilities.

What cybersecurity actually does

Cybersecurity controls reduce the likelihood and impact of incidents. Strong security practices - patching, multi-factor authentication, endpoint protection, access controls, monitoring - prevent many incidents from occurring and limit the damage when they do. They reduce the frequency and severity of claims, which keeps insurance premiums lower.

Cybersecurity also protects what insurance cannot: customer trust, brand reputation, operational continuity during an attack, and the intellectual property and data that may be exfiltrated before anyone notices a breach.

What insurers now require

The Australian cyber insurance market has hardened significantly following a series of large claims. Insurers now routinely require evidence of:

• Multi-factor authentication on email, remote access and privileged accounts
• Regular patching and vulnerability management
• Endpoint detection and response tooling
• Backup procedures that are tested and isolated from ransomware
• Incident response plans
• Security awareness training

Organisations without these controls are either declined coverage, charged significantly higher premiums, or offered policies with exclusions that undermine the coverage. In effect, insurers are requiring a minimum security baseline before they will take on the risk.

The right way to think about both

Cybersecurity and cyber insurance are complementary, not competing. Invest in security controls to reduce the probability and severity of incidents. Take out cyber insurance to transfer the residual financial risk that security controls cannot eliminate. Neither is a substitute for the other.

For most Australian SMBs, the practical sequence is: implement the security controls insurers require, then obtain cyber insurance at a reasonable premium. Attempting to buy insurance without security controls results in poor coverage at high cost.

Find cybersecurity providers to meet insurance requirements on CyberAtlas

CyberAtlas lists verified Australian cybersecurity providers who can help your organisation implement the controls that insurers require and that reduce your actual risk exposure. Use the directory to find specialists across endpoint, identity, monitoring and GRC.