Why Are So Many Cyber Insurance Claims Being Denied?

Cyber insurance has become one of the fastest-growing segments of the commercial insurance market. Organizations across every industry from manufacturing and healthcare to financial services, education, professional services, and local government—are investing in cyber insurance to help protect themselves from the growing financial impact of ransomware, business email compromise, data breaches, and other cyber events. As cyber threats continue to evolve, the decision to purchase cyber insurance has become less of an option and more of a business necessity.

Yet despite that growth, one trend continues to raise concern throughout the industry.

Industry discussions frequently estimate that 40% to 45% of cyber insurance claims are denied, reduced, delayed, or otherwise fail to produce the outcome policyholders expected, depending on how claims are categorized and the source being referenced. Regardless of the exact percentage, the trend highlights an important reality: purchasing cyber insurance and successfully navigating a cyber insurance claim are not necessarily the same thing.

At techrug, we've spent years studying the relationship between cybersecurity and cyber insurance. Through our work with businesses, insurance professionals, legal teams, and technology providers, we've reached a conclusion that continues to shape how we think about cyber risk.

The industry doesn't simply have a claims problem.

It has a preparation problem.

Many organizations still approach cyber insurance the same way they approach commercial property or general liability insurance. They complete an application, answer a series of underwriting questions, pay the premium, and assume the policy will respond if a cyberattack occurs. That assumption is understandable, but modern cyber insurance has evolved far beyond the traditional insurance model.

Today's policies are closely tied to an organization's cybersecurity posture. Insurance carriers evaluate far more than revenue, employee count, or annual sales. They want to understand how identities are protected, whether multi-factor authentication has been fully implemented, how backups are maintained and tested, how privileged accounts are managed, whether endpoint detection and response tools are deployed, how employees are trained to recognize cyber threats, and whether the organization has a documented plan for responding to an incident. In many respects, the underwriting process has become an evaluation of cyber maturity as much as financial risk.

That evolution has fundamentally changed what happens after a claim is filed.

One of the most common issues doesn't begin with ransomware or a data breach. It begins months earlier during the underwriting process. Organizations answer questions based on the information available at the time the policy is purchased, but technology environments are constantly changing. Employees are hired and leave the company. New software is deployed. Security tools are upgraded, replaced, or disabled. Infrastructure expands. Business processes evolve. By the time a cyber incident occurs, the environment that exists may be significantly different from the one originally presented to the insurance carrier. That does not automatically mean anyone acted improperly, but it can create questions about whether the risk being claimed is the same risk that was originally insured.

Policy language presents another challenge that many organizations don't fully appreciate until they experience a loss. Business owners often focus on the total coverage limit without realizing that cyber insurance policies frequently contain sub-limits, exclusions, waiting periods, and definitions that apply differently depending on the nature of the incident. Ransomware, business interruption, social engineering, fraudulent fund transfers, regulatory costs, legal expenses, and data restoration may all be treated differently within the same policy. A policy that appears comprehensive during renewal may respond very differently during an actual cyber event.

Timing can also influence the outcome of a claim. When an organization experiences a cyberattack, the immediate priority is restoring operations. Leadership wants employees back to work, customers expect communication, and technology teams begin containing the threat and recovering critical systems. At the same time, however, the insurance process has already begun. Notification requirements may apply, evidence may need to be preserved, documentation becomes increasingly important, and legal obligations can emerge almost immediately. Organizations encountering these requirements for the first time often discover that cyber insurance involves far more than simply reporting a loss.

Perhaps the biggest challenge is the education gap that still exists throughout the market. Businesses invest considerable time comparing premiums, deductibles, and policy limits before purchasing coverage, yet comparatively little time understanding how that policy functions after a cyber incident occurs. The result is that many organizations first learn how their cyber insurance works while actively managing one of the most disruptive events they have ever experienced.

That realization ultimately shaped the way techrug developed CyberBreach™.

Rather than viewing cyber insurance as a product that only becomes important after an attack, we believed it should become part of a broader cyber resilience strategy. Our approach focuses on helping organizations strengthen their cybersecurity posture, improve documentation, better understand policy expectations, and prepare for the claims process long before an incident occurs. The objective has never been to simply provide insurance. It has been to help businesses place themselves in the strongest possible position before they ever need to rely on their coverage.

That philosophy has produced measurable results. In 2024 and 2025, 100% of claims submitted under techrug's Coverholder program were covered. Every claim is unique and evaluated according to its own facts, policy language, limits, exclusions, and applicable conditions, and past results cannot guarantee future outcomes. However, our experience continues to reinforce a lesson that extends beyond any single insurance program: organizations that prepare before a cyber incident consistently place themselves in a stronger position than those that simply purchase a policy and hope they never need it. 

Cyber threats will continue to evolve. Artificial intelligence will introduce new opportunities and new risks. Businesses will become increasingly dependent on cloud platforms, automation, and third-party vendors. As those changes continue, cyber insurance will evolve alongside them.

The organizations that navigate future cyber incidents most successfully are unlikely to be those that simply purchased the largest policy or negotiated the lowest premium. They will be the organizations that understood what they purchased, maintained the cybersecurity controls supporting that coverage, and treated cyber insurance as one component of a much broader cyber resilience strategy.

The biggest challenge facing the cyber insurance industry is not simply the number of claims that are denied.

It is the number of organizations that don't discover how their policy works until the day they need it most.

Frequently Asked Questions

Why are cyber insurance claims denied?

Cyber insurance claims may be denied, reduced, delayed, or otherwise fail to produce the outcome a policyholder expected for a variety of reasons. Common factors include inaccurate underwriting information, policy exclusions, reduced sublimits, delayed notification, insufficient documentation, unmet policy conditions, or differences between the cybersecurity controls represented during the application process and those that existed when the incident occurred.

Why do cyber insurance policies contain exclusions and sublimits?

Cyber insurance policies are designed to address a wide range of cyber risks, and different types of losses may be treated differently. Exclusions define what is not covered, while sublimits establish separate limits for specific coverages. Understanding these provisions before an incident occurs is an important part of cyber risk management.

What is the biggest mistake organizations make when purchasing cyber insurance?

Many organizations spend significant time comparing premiums and coverage limits but far less time understanding policy language, reporting requirements, documentation expectations, and how the claims process works. Cyber insurance should be viewed as part of an organization's overall cyber resilience strategy rather than simply an annual insurance purchase.

How is techrug's approach different?

techrug developed CyberBreach™ around the belief that preparation should begin long before a cyber incident occurs. By combining cyber insurance with cybersecurity readiness, documentation, and proactive risk management, the goal is to help organizations strengthen their position before they ever need to file a claim.