You’ve got robust firewalls, diligent vendors, and airtight protocols. Your IT team is battle-ready, and your security training program is second to none. So why worry about your cyber insurance?
Because some threats don’t come knocking at your door. They arrive through someone else’s, and that can make them hard to stop.
Even when a cyber breach isn’t your fault, you still pay the price
Cybersecurity best practices can dramatically reduce your exposure, but they’re not a magic shield. Many breaches stem from weaknesses you can’t directly address, such as a flaw in a third-party platform your business relies on daily.
Take Microsoft SharePoint. A recent incident exposed a zero-day vulnerability that allowed attackers to bypass authentication and execute code remotely, putting sensitive data and workflows at risk for users. Even if your own systems were flawless, the disruption could ripple through your operations.
Similarly, Whole Foods took a direct hit to its ability to serve customers when hackers breached a major supplier. In both cases, the companies didn’t “fail”; they simply absorbed the impact of problems that originated upstream.
These are classic examples of contingent business interruption (CBI), where someone else’s vulnerability disrupts your operations.
According to the Allianz Risk Barometer, cyber incidents and business interruptions remain the top two global business risks. Modern businesses, including yours, run on interconnected networks of suppliers, cloud providers, and service vendors. If one cog in the wheel breaks, the whole machine can stop.
That’s where cyber insurance, particularly its CBI coverage, acts as a safety net for the risks you can’t eliminate.
How CBI insurance coverage protects you from vendor outages
CBI insurance coverage steps in when someone else’s downtime becomes your problem. The National Association of Insurance Commissioners explains that CBI coverage protects you from lost income caused by disruptions in the operations of suppliers or customers.
In practice, that could mean covering lost revenue during a cloud outage, a critical transportation delay, or a manufacturing plant shutdown. CBI coverage can apply to disruptions caused by both IT and non-IT vendors.
To get the most value from your CBI coverage, you can:
- Identify your most important vendors, both IT and non-IT, and map their upstream dependencies.
- Review your policy language to confirm how each type of vendor disruption is covered.
- Check for payout limits or exclusions that could leave gaps for major vendors like AWS or key logistics providers.
- Assess vendor contracts for recovery limitations, including liability caps that may restrict compensation.
These steps help you see where your business is most at risk, so you can align your insurance strategy with the reality of your vendor network.
Why legal action alone won’t cover your cyber breach losses
Even when a breach stems from a vendor’s mistake, recovering damages through legal channels can be hard. Vendor contracts often cap liability at the value of the contract itself, an amount that frequently falls short of actual losses.
If you pursue a claim against a vendor, subrogation in cyber insurance (where the insurer recovers costs from the party at fault) is rare. Legal processes take time, and operational losses can escalate quickly.
That’s where cyber insurance steps in — covering not just the direct costs of a breach, but also the indirect consequences like lost sales, recovery expenses, and legal fees.
Why cyber insurance is critical for business resilience
Some business leaders decline cyber insurance saying, “We’re not a target for hackers,” or, “Our vendors handle the risk.” These myths can leave you financially exposed. If you have data, money, or systems to exploit, you’re a target. And while you can outsource tasks to third parties, you can’t outsource liability. Protecting your customer and employee data is your responsibility.
Those who choose cyber insurance view it as a strategic investment for business resilience. The price is far less than the average $4.4M cost of a data breach. Cyber insurance acts as a safety net, minimizing financial and operational fallout. It can mean the difference between a swift recovery and weeks of disruption.
Beyond financial protection, cyber insurers provide hands-on support when it matters most. They connect you with forensic consultants to identify the breach, recovery specialists to restore critical systems, and PR experts to manage reputational damage.
Cyber insurance policy clauses that can leave you exposed
Not all cyber insurance policies are created equal. Some carriers provide broad contingent business interruption (CBI) coverage but limit payouts for large vendors like AWS or Microsoft. Others require a direct contractual relationship with the vendor that experienced the outage.
If your systems depend on a subcontractor’s subcontractor, you could fall outside the coverage scope. You need to tailor your policy to your specific vendor ecosystem and the types of cyber incidents you might face.
Social engineering: the human factor in cyber risk
Technology isn’t the only vulnerability in your network. Social engineering, or manipulating employees into revealing passwords or sensitive data, remains a leading cause of breaches. Even the most security-aware teams can be caught off guard by impersonated help desk calls, where attackers pose as IT support to extract login credentials. Fraudulent vendor invoices are another common tactic, mimicking legitimate billing requests to prompt unauthorized payments.
You can’t eliminate human error or control every vendor, supplier, or platform you rely on. In a hyperconnected world, cyber risk will always be present.
Cyber insurance helps reinforce your defenses, enabling your business to recover more quickly and decisively.
Want to learn more?
Connect with Risk Strategies Cyber Risk Team at cyber@risk-strategies.com.
About the author
Allen Blount leads the Cyber Team at Risk Strategies. He specializes in both cyber insurance and tech E&O (errors and omissions). Prior to this role, he spent 12 years with Zurich North America, gaining extensive experience as a Cyber and Professional Liability Underwriting Manager. Before his insurance career, he practiced law.
