UNDERSTANDING CYBER INSURANCE: A CRITICAL COMPONENT OF CYBER
SECURITY STRATEGY
FOREWORD
As we navigate an increasingly digital world, the importance of cyber security has never been greater. With businesses relying heavily on technology, the threat landscape has expanded, making it crucial for companies to protect themselves against cyberattacks In risk management, organizations can choose to mitigate, avoid, accept, or transfer a risk. Cyber Insurance is part of the transfer option, serving as a safety net for organizations facing the financial impacts of cyber threats
The surge in cyber incidents in recent years has underscored the necessity for cyber insurance. For 2025, Munich Re expects the global cyber insurance market to reach USB 16,3bn with a cyber risk landscape divided in four major threats: Ransomware (USD 75m payment record), Scams (USB 55bn loss in decade), Supply Chain (USD 60bn expected cost for 2025) and Data Breach (USB 4,88m of loss average and 5,5bn accounts compromised). These attacks have highlighted the devastating financial and operational impact of cyber threats all around the globe. Additionally, evolving regulatory requirements, such as GDPR, PIPEDA, Law 25 and CCPA, have made it imperative for organizations to have adequate coverage in place to avoid hefty fines and legal repercussions.
WHAT IS CYBER INSURANCE?
As cyber threats continue to grow in frequency and sophistication, understanding the nuances of cyber coverage has become essential for insurance professionals. Throughout the next pages, we will explore the evolution of cyber insurance, key coverages, underwriting processes, and market dynamics specific to the Canadian insurance environment.
Present
Cyber insurance is now a mainstream product for organizations of all sizes Governments and regulators emphasize its role in risk management amid rising threats. The Canadian market continues to mature with more insurers and capacity, but also more careful underwriting
2015-2023 Boom (Canada)
Heightened cyber threats drove exponential growth. Cyber premiums in Canada jumped from $18M in 2015 to $550M in 2023 However, losses outpaced premiums – Canadian insurers averaged a 153% combined ratio from 2019-2023, leading to tightening underwriting and higher rates
2000s Growth
As businesses digitized, insurers expanded coverages to address data breaches and network security incidents By the early 2010s, demand grew rapidly after high-profile breaches. The global cyber insurance market reached ~$1B in premium by 2013.
Origins (1990s)
Cyber insurance emerged in the late 1990s. In 1997, AIG introduced the first internet security liability policy, marking the launch of cyberspecific coverage. Early policies were narrow, often bundled with tech E&O or media liability coverage
Cyber Insurance Evolution From Niche to Mainstream Product
WHAT IS CYBER INSURANCE?
Cyber insurance is a specialized insurance policy designed to help organizations mitigate the crisis management & financial risks arising from cyber incidents. Modern cyber policies are typically divided into multiple insuring agreements that correspond to different coverage areas. Policies often group these into first-party vs third-party sections. The first-party covers the insured's own losses, while third-party covers liabilities to others. Common coverage areas include data breaches, ransomware attacks, business interruption, cyber extortion, and legal fees related to regulatory compliance (Quebec’s Law 25, PIPEDA, etc.).
1. Definitions
It is usually the first section of the policy. It defines terms that determine triggers and scope of coverage. The key definitions are “Insured”, “Cyber event”, “data or privacy breach”, “system failure or outage”, “third-party”, “business interruption” and “ extortion”,
3. Exclusions
This section lists what the insurance policy does not cover The key exclusions that can be found in a cyber policy are detailed in the next pages.
5. Deductible
In a cyber policy, the deductible is money based (for most of the coverages) & time based (waiting period in hours for the business interruption coverage).
2. Insuring Clauses
This section outlines what the insurance policy covers. The key coverages that can be found in a cyber policy are detailed in the next page
4. Conditions
This section specifies the requirements, preventive duties & obligations of the policyholder. For instance, written consent is required for specific scenarios. Another example is the maintenance of minimum cyber security controls during the policy period such as MFA N compliance with duties may lead to a claim denial.
KEY CYBER COVERAGES
1st Party Coverage
Protects the policyholder's own interests and assets.
Breach Cost Expenses
Covers first-party costs of responding to a data breach, including forensic investigation, customer notification, credit monitoring, public relations, and legal/regulatory advice. Most of the vendors offering these services can be selected through the vendor panel defined by the Insurer
Business Interruption
Covers the insured's loss of income due to a network or system outage caused by a cyber event. Policies cover direct attacks and contingent BI (outages at third-party IT providers)
Ransomware
Covers ransomware and extortion incidents, paying extortion demands (ransom) and associated costs of negotiation and expert assistance
Digital Asset & System Restoration
Covers costs to restore or replace data, software, and systems damaged by a cyber attack This includes the cost to recover data from backups and to repair software. Some policies cover "bricking" –hardware rendered unusable by malware
*E-Crime Somepolicies covers socialengineering & fundtransferfraud .
3rd Party Coverage
Protects against claims made by others due to the policyholder's actions.
Network Security Liability
Third-party liability coverage for claims arising from a failure of the insured's network security. This includes lawsuits by customers or partners alleging the insured's inadequate cybersecurity caused them harm
Regulatory Procedures
Covers regulatory (PCI, PIPEDA, Law 25, GDPR, etc.) fines and penalties where insurable by law.
Media Liability
Coverage for online media and content-related exposures. Protects against defamation, copyright/trademark infringement, or personal injury arising from digital publications.
Technology E&O
For tech companies or those providing technology services, cyber policies often include tech E&O coverage It covers liability for failure of tech products or services that causes client losses.
KEY CYBER EXCLUSIONS
War & Cyber War
Almost all cyber policies exclude acts of war. Modern wordings specifically exclude cyber war (state-sponsored cyberattacks). This exclusion came under scrutiny after incidents like NotPetya were deemed "hostile/warlike" acts.
Terrorism
Many cyber policies exclude terrorism, or specifically cyber terrorism. Some policies carve back coverage for cyber terrorism up to a limit, but generally losses due to cyber terrorism fall outside standard coverage.
Prior Acts / Prior Breaches
Cyber policies usually exclude known incidents or breaches that occurred before the policy period This prevents adverse selection (buying insurance for an ongoing breach).
Bodily Injury & Property Damage
Cyber insurance typically excludes bodily injury or physical property damage claims. Such perils are meant to be covered by property or general liability insurance.
Insider Acts & Fraud by Insured
Deliberate wrongful acts by the insured (or their senior leadership) are excluded. For example, if an executive intentionally causes a breach or colludes with attackers, the policy will not pay.
Intellectual Property Theft
Coverage for patent/trade secret loss is often excluded or very limited This is a significant gap for companies with valuable IP assets.
Contractual Liability
Fines or payments the insured agreed to by contract are typically excluded, unless arising from a covered breach. This limits coverage for contractual penalties.
Infrastructure Failure
Power grid outages or internet backbone failures not caused by a cyber event are usually excluded as they're not a breach of the insured's system.
ADDITIONAL POLICY CONSIDERATIONS
Cyber policies offer much more than the key coverages presented above and vary from a carrier to the other. As any other forms of contract, several elements need to be reviewed and considered before selecting the appropriate cyber insurance policy
Special Coverages/Clauses
Betterment Cost Coverage - Some cyber policies offer this coverage for the cost associated to improve or upgrading your computer system after a cyber incident. It is usually excluded or capped to 250/500k.
Voluntary Shutdown Coverage - Most of the policies (but not all) offer this coverage.. This first-party business interruption coverage applies when the insured intentionally shuts down their own systems in response to a potential or actual cyber threat before actual damage occurs to minimize or prevent loss.
Acquisition Clause - The acquisition of a new subsidiary will be automatically covered if it accounts for less than a certain percentage threshold of the consolidated annual revenue of the insured company If the new subsidiary represents more than this threshold of the consolidated annual revenue, the Policyholder must notify within 30 to 90 days of the new acquisition
Carve Back - The most common carve back in cyber policies are carve back for antitrust/trade-practice exclusion for the Breach Response agreement and for certain Data/Security breaches (assuming no collusion by the Control Group)
Written Consent
Most of cyber policy wordings require written consent before the insured takes certain actions that could lead to a claim being paid. It is critical for policyholders to identify the actions. Typically, written consent from the Insurance company is required for ransom payment, breach response vendors outside panel,
Period of Restoration (Indemnity Period)
Cyber BI coverage is not indefinite. Insurers limit how long they will cover lost income and extra expense. BI coverage ends when systems are restored not when revenue returns to normal. The period of restoration refers to the maximum time during which business interruption (BI) losses are covered following a cyber incident. It ranges from 60 to 365 days.
Defense Costs in Quebec
In a cyber policy, defense costs are covered under the first party liability section. In Québec, historically, defense costs in liability insurance are deducted from the policy limit and are paid in addition, due to the Civil Code. It is relevant to verify if your cyber policy allows to include defense costs within the limit or outside the limit.
Additional Cyber Services
Most of cyber policies provide access to cyber security services and products for free or at a preferred rate (External Attack Surface Scans, Phishing Simulations, Vulnerability Reports, Employee Awareness Training, Tabletop Simulation, Endpoint Detection & Response (EDR) Discounts) Some carries even offer cash return for any investment to improve insured cyber posture
CHOOSING THE RIGHT CYBER INSURANCE POLICY WITHTHE RIGHT CARRIER
Selecting the appropriate cyber insurance policy requires careful consideration As a result, at BFL CANADA, our brokers follow a specific underwriting process for new placements or for renewals
Risk Improvement
Prepare for next renewal
Presentation of coverages and steps
9. Vendor Selection 2. Technical Review
Interview law and security firms Identify gaps and weaknesses
8. Placement Finalization 3. Public Domain Scan
Document signature and invoicing
Kick-off 7. Presentation of Options
Present market options
Identification of public vulnerabilities
Insurance Application
Collect technical information 6. Market Negotiation 5. Cyber Placement Discussion
Negotiate terms and conditions
Discuss strategy vs technical state
IMPACTS OF CYBER SECURITY MEASURES ON CYBER INSURANCE
One of the most important aspects of obtaining a cyber insurance with competitive terms & conditions is demonstrating a robust cyber security posture Insurers often evaluate an organization’s cyber security measures before providing coverage Organizations with strong risk management practices, incident response plans, and employee training programs may find it easier to secure coverage at favourable rates. This underscores the importance of investing in proactive cyber security measures to not only protect sensitive data, but also reduce insurance premiums.
COMMON MISCONCEPTIONS
ABOUT CYBER INSURANCE
Several misconceptions about cyber insurance persist, despite its growing importance.
One common myth is that cyber insurance covers all losses associated with a cyber incident. Policies often have limitations and exclusions, which stresses the need for organizations to have comprehensive cyber security strategies alongside insurance. Another misconception is that only large companies require cyber insurance. In fact, small- and medium-sized enterprises are increasingly targeted by cybercriminals, making them equally in need of protection.
While everybody buys property insurance for tangible assets like buildings and equipment, they do not typically purchase it for non-tangible assets, such as digital data and intellectual property, which are just as vulnerable to cyber threats. This common but irrational behaviour applies to organizations as well.
According to BFL CANADA, the largest Canadian private insurance brokerage firm, only 25% of Canadian companies have a cyber insurance in place and less than 1% of individuals currently purchase a personal cyber insurance policy.
THE PARADOX OF THE GROWING NEED FOR CYBER INSURANCE
While as individuals, we rely more and more on technology, our level of risk awareness and risk protection does not follow suit. At home, we use technology for day-to-day activities without necessarily being aware of the risk exposure, even though Canada is one of the most internet-connected countries in the world
The Internet of Things (IoT), such as connected smart TVs, camera systems, and home automation (lighting, temperature control, audio/video control, door security, etc.) represents a potential gateway for hackers, in addition to the exposures arising from personal laptops, tablets and cell phones.
Most people think that cyber risk stops when they leave the office because it is mainly an enterprise risk However, even if we feel safer at home, cyber exposure is higher at the individual level. As individuals, our level of personal cyber security is evidently lower than that of an organization.
Hackers are well aware of this and are increasingly targeting individuals. The spoils may be smaller than the ones from an organization, but they are easier to reap. The latest hacking trend is to target wealthy individuals instead of random or ordinary people.
In addition, if hackers manage to gain access to individual connected devices, they may also take control of corporate devices, by creating a bridge between personal and corporate information, for instance by taking control of the second factor of multi-factor authentication (MFA) or by obtaining the user’s credentials.
Moreover, despite the increase in the use of AI, most companies and employees don’t always understand the process behind it. This can lead to data leaks and a widening of the attack surface.
IMPACTS OF CYBER INSURANCE ON SECURITY STRATEGY
Cyber insurance plays a critical role in a cybersecurity strategy by serving as both a financial risk transfer mechanism and a strategic partner in strengthening an organization’s cyber resilience. It is no longer just about covering losses—it’s about enabling prevention, response, and recover Cyber insurance is not an expense—it’s a budgeting tool for cybersecurity maturity.
Risk Transfer for Catastrophic Events
Mitigates financial risks from cyber incidents proactively. Without insurance, these costs could bankrupt a business or severely disrupt operations.
Policies typically include 24/7 breach response hotline, access to top-tier forensic firms, breach counsel with prenegotiated rates. This speeds up containment and recovery critical during high-pressure attacks
Cyber Hygiene Enforcement
Enforces security controls to prevent future incidents. Most cyber insurers now require or incentivize MFA, EDR, Data backups, segmentation and PAM. This forces insureds to mature their controls, often aligning with NIST or ISO 27001 standards.
Demonstrates cyber risk governance to boards and regulators (e.g., OSFI, AMF, SEC, GDPR).Required or recommended in vendor contracts, M&A, and supply chain due diligence.
Access to Incident Response Experts Board & Regulatory Alignment
CONCLUSION
In a world where cyber threats are omnipresent, cyber insurance plays a crucial role in an organization’s cyber security strategy. By understanding the complexities of cyber insurance and the importance of strong cyber security practices, organizations can better protect themselves against the financial and operational impact of cyber incidents In 2025, it has become essential for businesses to evaluate their cyber risks and consider appropriate coverage to safeguard their assets and reputation.
BFL CANADA considers insurance as a service, not simply a strategy and an expense We look beyond risk transfer, because cyber risk is a business risk, not an IT risk. Being able to integrate all elements of cyber security into our offering enables our clients to optimize their contracts, eliminate duplication of expenses, improve their maturity posture, quantify their exposure, as well as streamline the insurance program and incident response process.
Stay Tuned - BFL CANADA will release white papers on other related topics shortly (Impact of AI on Cyber, Ransomware, Silent Cyber Coverage and Cyber Market Trends).
ADDITIONAL RESOURCES
For further reading, consider exploring the following resources:
– National Institute of Standards and Technology (NIST) cyber security Framework
– Munich Re
– BFL CANADA—Cyber Risk
If you’re looking for expert advice on cyber insurance options, consider reaching out to a licensed broker specializing in this field.
You can contact cyberpractice@bflcanada.ca for more information.
Cyber Threat
Table 1 – Cyber-related events covered by a cyber policy
Data Breach
Denial-of-Service (DoS) Attack
Insider Threat
An attacker gains unauthorized access to a company’s database and extracts sensitive client data, including names, addresses, and credit card information. The company must notify affected individuals and regulators.
A company’s website is flooded with traffic, causing it to crash and become unavailable to clients. The result is lost revenue and damaged reputation.
A disgruntled employee intentionally leaks sensitive company information to competitors or the public, resulting in reputational damage and legal action.
Costs of notifying affected individuals, credit monitoring services, legal fees, and Public Relations expenses to manage the fallout. as well as costs to mitigate the attack and restoration of services. Legal fees to defend against lawsuits.
Mainly business interruption coverage for lost revenue during downtime, as well as costs to mitigate the attack and restoration of services.
Legal fees to defend against lawsuits, as well as costs associated with investigations and public relations efforts to mitigate damages.
Table 1 – Cyber-related events covered by a cyber policy (continued)
Cyber Threat Scenario Attack Description
Malware Infection
Network Failure
An employee unknowingly downloads malicious software that compromises the company’s network by stealing data and potentially spreading to other systems.
A cyber attack exploits vulnerabilities in the company’s network infrastructure, causing widespread outages and disrupting connectivity for employees and clients. The attack may involve manipulation of routing protocols or unauthorized changes to network configurations.
Phishing Attack
Ransomware Attack (Cyber Extortion)
Employees receive emails that appear legitimate, prompting them to enter sensitive information on a spoofed website. This compromises employee credentials and client data.
A company’s files are encrypted by ransomware, rendering critical data inaccessible. The attackers demand a cryptocurrency ransom to restore access. The company must decide whether to pay the ransom or incur the cost of recovery.
Potential Coverage
Costs associated with identifying and removing the malware, system repairs, and potential legal fees resulting from data loss. Potential business interruption.
Business interruption coverage for lost revenue during network downtime, costs associated with restoring network functionality, and potential legal costs if client service is compromised.
Losses from social engineering scams, costs associated with investigation and remediation, and potential liability claims from affected clients.
Coverage for business interruption, ransom payment (if deemed necessary), legal fees for negotiating with the attacker, and costs of postincident security enhancements.
Table 1 – Cyber-related events covered by a cyber policy (continued)
Cyber Threat Scenario Attack Description
Non Regulatory Compliance
An attacker gains unauthorized access to an organization's system, compromising sensitive customer data or personal information subject to specific regulatory standards (e.g. GDPR, CCPA, Law 25). The breach results in the organization failing to meet data privacy and security compliance requirements, triggering regulatory investigations, fines, and penalties.
Regulatory compliance coverage includes legal costs to defend against regulatory investigations and actions, as well as coverage for fines and penalties imposed by authorities such as GDPR, CCPA, or Law 25. The policy may also cover the costs of notifying affected individuals and providing necessary credit monitoring or identity protection services. Thirdparty services, such as public relations support and breach response consultants, may also be covered to manage reputational damage and facilitate compliance recovery efforts.
System Failure
Third-Party Data Breach
Website Defacement
A software vulnerability is exploited, resulting in a system crash that disrupts operations for several days. The disruption impacts revenue and client confidence.
A provider of cloud storage services suffers a breach that compromises the data of multiple clients. The affected company faces legal claims from clients whose data was exposed.
A hacker gains access to a company’s website and changes the content to display offensive messages. This damages the company’s reputation and misleads clients.
Business interruption coverage for lost revenue during downtime, system recovery costs, and potential legal fees if clients are affected.
Liability coverage for legal claims and customer notification costs, as well as remediation and reputation management expenses.
Costs of restoring the website, costs of Public Relations efforts to address the incident, and potential legal costs. Legal fees to defend against lawsuits.
