What Is Cyber Insurance? Why Tech Companies Must Have It
In today's digital economy, technology companies are more exposed to cyber risk than ever before. From data breaches to ransomware attacks, a single security incident can lead to severe financial loss, operational disruption, and reputational damage. Major tech companies like SolarWinds, Microsoft, Accenture, and Colonial Pipeline have all experienced significant cyber incidents in recent years.
Cyber insurance exists to help businesses prepare for and recover from these types of events. For companies in the tech sector, where data and digital infrastructure are critical to daily operations, cyber insurance is no longer optional. It's a fundamental layer of business protection that complements technical security measures.
What Is Cyber Insurance?
Cyber insurance is a specialized form of business insurance designed to cover financial losses and response costs related to cyber incidents. These may include data breaches, malware infections, system outages, and other forms of cyber attack. While general business insurance typically protects against physical damage or liability, it does not extend to digital events. Cyber insurance is designed to fill that critical gap.
Cyber coverage insurance provides financial protection against a wide range of digital threats that traditional insurance policies simply don't address. Leading insurance providers like CFC Underwriting, Chubb, AIG, and Beazley have developed sophisticated cyber risk insurance products tailored to the evolving threat landscape.
The Evolution of Cyber Insurance
The cyber insurance market has matured significantly over the past decade. What began as a niche product has evolved into a robust insurance category with specialized coverage options for businesses of all sizes and industries. This evolution reflects the growing recognition that cyber risk is a permanent feature of our digital business environment.
Today's cyber policies are more sophisticated and comprehensive than ever before, reflecting insurers' growing understanding of digital risk. At AB Phillips, we've witnessed this evolution firsthand and continually adapt our offerings to meet the changing threat landscape.
Why Is Cyber Insurance Important?
Cyber threats are increasing in both frequency and sophistication. The risks range from accidental data loss to highly targeted ransomware attacks. In Australia, businesses of all sizes are being impacted, but tech companies are particularly vulnerable due to their digital nature.
The financial impact of a cyber event can be significant. Common costs include forensic investigations, legal advice, customer notification, data restoration, and business downtime. For some businesses, these costs can stretch into the millions. High-profile incidents at companies like JBS Foods, Optus, Medibank, and Nine Entertainment have demonstrated the severe financial consequences of cyber attacks.
Having cyber insurance means you're not facing those costs alone. It also means you have access to expert support during what is often a high-pressure situation where decisions must be made quickly and correctly.
Cyber Risk by the Numbers
The statistics paint a concerning picture:
The average cost of a data breach in Australia has reached $4.5 million
60% of small businesses that suffer a cyber attack go out of business within six months
Ransomware demands have increased by 518% over the past two years
The global average time to detect and contain a data breach is 277 days
95% of cybersecurity breaches are caused by human error
These figures underscore why cyber risk insurance has become essential, particularly for technology companies that handle sensitive data or provide critical digital services.
How Does Cyber Insurance Work?
When a cyber incident occurs, the policyholder notifies their insurer. The insurer may assign an incident response team that includes legal advisors, IT forensic specialists, and crisis communication experts. The insurer covers eligible costs up to the agreed policy limits.
Depending on the policy, this might include ransom payments, data recovery expenses, and compensation for lost income during system outages. The claims process is designed to be responsive and efficient, acknowledging that time is of the essence during a cyber incident.
The Incident Response Process
Detection and notification: The insured discovers a breach or incident and notifies their insurer
Initial assessment: The insurer evaluates the situation and activates response resources
Incident containment: Security experts work to limit the spread or impact of the breach
Investigation: Forensic specialists determine what happened and what data was affected
Recovery and restoration: Systems are cleaned, restored, and brought back online
Notification and communication: Affected parties are notified as required by law
Claims payment: The insurer covers eligible costs as defined in the policy
This structured approach ensures businesses can respond effectively even in crisis situations.
What Does Cyber Insurance Cover?
Coverage varies between insurers, but generally includes:
Incident response and investigation: Costs for IT forensics, legal guidance, and determining the scope of the breach
Data recovery and system repair: Expenses to restore data and fix compromised systems
Business interruption losses: Compensation for income lost during system outages
Legal and regulatory defence costs: Protection against regulatory actions and lawsuits
Third-party liability claims: Coverage for claims made by clients or partners affected by your breach
Notification and credit monitoring for affected individuals: Costs associated with informing those impacted
Crisis communication and reputation management: Professional help managing public relations
Some policies may also include cover for social engineering, phishing scams, and employee error. Our clients in specialized industries such as insulated panel construction and camp management often require tailored cyber coverage that addresses their unique operational risks.
First-Party vs. Third-Party Coverage
First-party coverage protects your business directly against losses you suffer, such as:
Costs to recover compromised data
Business income lost during downtime
Ransom payments (where legally permissible)
Crisis management expenses
Third-party coverage addresses your liability to others, including:
Legal defense costs
Settlements and judgments
Regulatory fines and penalties (where insurable)
Payment card industry (PCI) fines
A comprehensive cyber policy will typically include both types of protection.
What Risks Does Cyber Insurance Cover?
Cyber insurance helps protect against a wide range of digital risks, including:
Hacking or unauthorised access: Malicious actors gaining entry to your systems
Ransomware and extortion: Demands for payment to restore access to systems or data
Accidental data disclosure: Unintentional exposure of sensitive information
Human error or internal mishandling: Mistakes made by employees or contractors
Distributed denial of service (DDoS) attacks: Attempts to overwhelm your systems
Vendor or third-party breaches: Incidents originating from your supply chain
Regulatory investigations: Inquiries from authorities following a data incident
These risks are not only more common, but also more costly for businesses that rely heavily on technology. Cybersecurity platforms such as Fortinet, CrowdStrike, SentinelOne, and Darktrace help detect and prevent these threats, but insurance provides the financial safety net when prevention fails.
Why General Liability Doesn't Cover Cyber Liability
Standard business insurance policies are not designed to handle digital threats. They typically exclude losses related to electronic data, network breaches, and cybercrime. This is a common misconception that can leave businesses exposed.
Business owners often assume their general liability or professional indemnity policies will step in during a cyber incident, only to find out after the fact that they are not covered. Insurance providers like Allianz, Zurich, QBE, and Chubb all maintain separate cyber insurance products because the risk profile is fundamentally different.
The Coverage Gap
Here's why general liability falls short for cyber risks:
Traditional policies were designed before digital risks emerged
Electronic data is explicitly excluded from most property policies
Third-party damage from cyber events requires specialized coverage
General liability focuses on physical injury and property damage
Cyber incidents require specialized response services
Cyber insurance is a specialised policy that responds specifically to digital risk, with features and benefits designed for the unique challenges of cyber incidents.
Why Tech Companies Must Have Cyber Insurance
Tech companies are deeply interconnected, data-driven, and often rely on cloud platforms, APIs, and third-party tools to operate. This increases both the attack surface and the potential fallout of a breach. Technology giants like Amazon, Google, Microsoft, and Salesforce all maintain robust cyber insurance coverage despite having industry-leading security teams.
In many cases, clients and partners now expect vendors to carry cyber cover. It is becoming part of the cost of doing business, especially when managing sensitive customer data or providing critical software or infrastructure services.
Contractual Requirements
Many contracts now explicitly require technology vendors to maintain cyber insurance. This is particularly true for:
Government contracts
Enterprise clients
Healthcare or financial services customers
Companies handling personally identifiable information (PII)
Without cyber insurance, a single breach can stall growth, delay contracts, or erode hard-earned trust with clients and investors. This makes cyber insurance not just a risk management tool, but a business enabler.
The True Cost of a Cyber Incident
Beyond the immediate financial impact, tech companies face several additional risks:
Intellectual property theft: Loss of competitive advantage
Customer churn: Clients leaving after a breach
Reduced valuation: Impact on company value, particularly for startups
Operational disruption: Business interruption during recovery
Regulatory scrutiny: Increased attention from authorities
Similar challenges face businesses in other sectors, from pool industry professionals to camp owners and managers, making cyber insurance a cross-industry concern.
Selecting the Right Cyber Insurance Policy
Not all cyber insurance policies are created equal. When evaluating options, consider:
Coverage limits: Ensure they align with your potential exposure
Sublimits: Check for caps on specific coverage areas
Exclusions: Understand what isn't covered
Retroactive coverage: Protection for breaches that occurred before policy purchase
Territorial scope: Coverage for incidents occurring or affecting users worldwide
Social engineering coverage: Protection against phishing and fraud
Incident response services: Quality of the breach response team
Working with a specialized broker like AB Phillips ensures you get a policy that addresses your specific risk profile rather than a one-size-fits-all solution.
Three Steps To Reduce Cyber Risk
While cyber insurance provides financial protection, risk reduction remains essential:
Implement strong security practices, including multi-factor authentication, data encryption, and regular software updates. Leading security frameworks like NIST, ISO 27001, CIS Controls, and MITRE ATT&CK provide valuable guidance.
Train employees to identify phishing attempts and suspicious activity. Even the best technical controls can be circumvented by human error or social engineering.
Partner with a broker who can assess your digital exposure and recommend the right cyber insurance solution. At AB Phillips, we combine insurance expertise with cybersecurity knowledge to create truly effective coverage.
The Role of Security in Insurance
Many insurers now offer premium discounts for businesses with strong security controls. Common measures that can improve insurability include:
Regular security assessments and penetration testing
Endpoint detection and response (EDR) solutions
Secure backup systems with offline copies
Incident response planning and testing
Security awareness training for all staff
These measures not only reduce your risk but can also improve your cyber insurance terms and premiums.
How Cyber Insurance Complements Other Business Protection
Cyber insurance works best as part of a comprehensive risk management strategy. While tax audit insurance protects against unexpected regulatory costs, cyber insurance addresses digital threats specifically. Together with traditional business insurance, these specialized policies create a safety net that allows companies to operate with confidence in an uncertain world.
Understanding cyber insurance in Australia is particularly important given our unique regulatory environment, including mandatory data breach notification laws and increasing regulatory attention on digital security.
Final Thoughts
Cyber risk is one of the biggest threats facing tech companies today. With the right policy in place, you can reduce the financial and operational impact of an attack and respond with confidence. The question isn't whether you can afford cyber insurance—it's whether you can afford to go without it.
As cyber threats continue to evolve, so too will cyber insurance products. Working with a knowledgeable broker ensures your coverage keeps pace with emerging risks.
To learn more about cyber insurance and find a policy that fits your business, reach out to AB Phillips for expert advice and tailored coverage options. Our team's deep expertise in both insurance and technology allows us to create solutions that address your specific risks while providing genuine peace of mind.