When Business Cyber Insurance Won’t Pay

The Real-World Cost of Bad Cyber Hygiene

Cyber insurance used to feel like a safety net.

If a business got hit with ransomware, a data breach, or a wire fraud incident, insurance helped soften the blow. It wasn’t painless, but it was survivable.

Today? That safety net has holes — and in some cases, it’s not a net at all.

More and more businesses are discovering the hard way that cyber insurance doesn’t automatically mean cyber coverage. If your organization can’t prove it followed basic security practices, your claim may be denied, delayed, or reduced. And even when insurance does pay, it often doesn’t cover the full cost of the incident.

That’s where cyber hygiene comes in.

Let’s break down why business cyber insurance claims get rejected, what “bad cyber hygiene” really looks like, and how to protect your organization with security fundamentals that insurance carriers increasingly require.

The uncomfortable truth: Business Cyber insurance isn’t what it used to be

Cyber insurance has evolved rapidly in the last few years not because carriers wanted to make life harder, but because the threat landscape forced their hand.

Ransomware payouts skyrocketed. Attacks became more frequent and more sophisticated. And businesses, even well-meaning ones, often lacked the controls needed to prevent avoidable incidents.

So insurers responded the way insurers always do:

• Tightening underwriting requirements

• Increasing premiums

• Reducing coverage

• Adding exclusions

• Demanding proof of controls

• Denying claims when requirements aren’t met

In other words, insurance carriers are no longer paying for preventable negligence.

If your security posture doesn’t match what you said in your application, or what your policy requires — you may be left holding the bill.

What is “cyber hygiene,” and why does it matter?

Cyber hygiene is the day-to-day discipline of keeping your systems secure, updated, and resilient.

It’s not flashy. It’s not a product you buy once. It’s a set of ongoing practices that reduce risk and makes it much harder for attackers to succeed.

Think of it like brushing your teeth.

You can buy dental insurance… but if you never brush, floss, or see a dentist, eventually insurance won’t cover the full damage. Cybersecurity works the same way.

Cyber hygiene includes essentials like:

• Multi-factor authentication (MFA)

• Strong password policies and password management

• Timely patching and updates

• Endpoint protection

• Backups (that actually work)

• Access control and least privilege

• Security awareness training

• Monitoring and response planning

Frameworks like the NIST Cybersecurity Framework (CSF) help organizations define and maintain strong cyber hygiene through practical, repeatable security controls. And here’s the key: cyber insurance carriers increasingly require these controls… not as best practices, but as coverage prerequisites.

Why cyber insurance claims get denied (yes, it happens)

Let’s get practical. What causes a claim denial?

Most denials happen because of one of these issues:

1) Misrepresentation on the application

Many policies are written based on what the business reports during underwriting.

Example:

• The business checks a box that says “MFA enabled for remote access.”

• But MFA is only enabled for some users… or only for email… or not enforced at all.

If a breach happens and the insurer investigates, that checkbox becomes evidence.

Even if the misstatement was accidental, it can still lead to claim denial.

2) Failure to maintain required security controls

Some policies explicitly require certain controls.

If those controls lapse, even temporarily — you may be out of compliance.

Examples include:

• MFA turned off for “convenience”

• Backup jobs failing for months without anyone noticing

• Antivirus subscriptions expiring

• Critical security patches ignored

Insurance carriers are increasingly taking the stance that:

“If you didn’t maintain minimum safeguards, you didn’t meet policy conditions.”

3) Known vulnerabilities left unpatched

This is one of the biggest ones.

Many ransomware attacks don’t require “elite hacking.” They exploit known vulnerabilities with publicly available tools.

If a breach occurs because a business failed to patch a known vulnerability, especially for weeks or months, insurers can argue that the incident was preventable.

And preventable often means not covered.

4) Lack of documentation

This one surprises people.

Even if you are doing the right things, you may not be able to prove it.

Without logs, documentation, and audit trails, you may struggle to demonstrate:

• MFA enforcement

• Patch compliance

• Backup success and testing

• Security training completion

• Incident response steps

And if you can’t prove it, it’s your word against theirs… and that’s not where you want to be when six figures are on the line.

The real-world cost of bad cyber hygiene (even if insurance pays)

Let’s say insurance does pay.

Most business leaders assume the problem is solved. But in reality, cyber incidents create stacked costs, and insurance only covers some of them.

Here’s what bad cyber hygiene can cost you:

1) Business interruption

If your systems are down for 3 days (or 3 weeks), you’re losing:

• revenue

• productivity

• customer trust

• momentum

Even if insurance reimburses some of the loss, it rarely covers:

• missed opportunities

• delayed contracts

• churned clients

• reputational damage

2) Recovery labor and operational chaos

During an incident, your team will be consumed by:

• password resets

• workstation rebuilds

• user lockouts

• vendor calls

• emergency approvals

• “all hands” meetings

It’s stressful, disruptive, and expensive.

And if your internal IT team is small (like most SMBs), recovery becomes overwhelming fast.

3) Ransom demands + negotiation + legal overhead

Even when a ransom is paid, there are additional costs:

• forensic investigators

• ransom negotiators

• legal counsel

• compliance reporting

• customer notifications

Cyber insurance may cover pieces of this — but deductibles, caps, and exclusions add up quickly.

4) Premium increases and policy restrictions

After an incident, you’re no longer a “normal risk.”

Your next renewal may include:

• much higher premiums

• stricter requirements

• reduced coverage

• exclusions for ransomware

• refusal to renew entirely

In other words: one incident can make cyber insurance unaffordable.

5) Long-term reputational damage

This is the cost nobody wants to talk about.

Clients don’t always care that you were “a victim.”
They care that their data, or their operations, were impacted.

A breach can affect:

• trust

• reviews

• referral relationships

• vendor partnerships

• recruiting

Insurance can’t repair your reputation.

The most common cyber hygiene gaps we see (and attackers love)

At SkyTide Group, we’ve seen patterns across industries and the gaps are often surprisingly consistent.

Here are the big ones:

Weak or inconsistent MFA

• MFA enabled only for admins

• MFA not enforced for all users

• MFA bypass allowed for legacy apps

Attackers love this because compromised credentials are still the #1 entry point.

Poor password practices

• shared passwords

• passwords stored in spreadsheets

• no password manager

• no rotation policy for privileged accounts

Unmanaged endpoints

• devices missing patches

• no centralized monitoring

• outdated antivirus

• users running as local admins

Backups that exist… but don’t work

This is one of the most painful discoveries:

• backups haven’t run successfully

• backups are accessible from the network (and get encrypted too)

• restores have never been tested

A backup is only valuable if you can restore it quickly and reliably.

No real incident response plan

If an incident happens, teams often ask:

• Who do we call?

• Who shuts down what?

• Do we unplug systems?

• Who contacts clients?

• Who talks to the media?

Without a plan, businesses lose critical time — and the damage spreads.

How to make business cyber insurance work for you (not against you)

Cyber insurance can still be a valuable tool, but it works best when it’s paired with a mature cybersecurity strategy. Not sure where to start? A clear cybersecurity budget helps you prioritize the right protections, meet insurance requirements, and avoid surprise costs later.

Here’s what we recommend:

1) Treat underwriting like a security roadmap

If the insurer asks for:

• MFA

• EDR

• patch management

• backups

• email filtering

That’s not just paperwork. It’s a list of what criminals exploit.

2) Document everything

If you want insurance to pay, you need proof.

This includes:

• MFA enforcement reports

• backup success logs

• security training records

• vulnerability scans

• patch compliance reporting

3) Build layered protection

No single tool stops everything.

A layered strategy typically includes:

• endpoint security (EDR)

• managed detection and response

• secure email + phishing protection

• network segmentation

• privileged access management

• immutable backups

• ongoing monitoring

4) Work with an MSP that understands compliance and insurance expectations

Cybersecurity isn’t just “IT support” anymore.

It’s:

• risk management

• policy alignment

• audit readiness

• business continuity planning

At SkyTide Group, we help organizations put the right controls in place and maintain them over time — so you’re not scrambling at renewal or during a crisis.

Final thought: Business cyber insurance is NOT cybersecurity

Cyber insurance is a financial product.
Cybersecurity is an operational discipline.

And when the worst happens, the difference between a covered claim and a devastating loss often comes down to one thing:

cyber hygiene.

If your business is relying on insurance as your main protection plan, it’s time to reassess.

Because when cyber insurance won’t pay, the real-world cost of bad cyber hygiene lands exactly where you don’t want it:

On your business.

Want to know if your cyber hygiene would pass an insurance review?

SkyTide Group helps businesses strengthen security, reduce risk, and meet modern cyber insurance requirements — without overwhelming internal teams.

If you’re unsure whether your current environment would qualify for coverage (or survive an audit after an incident), we’re here to help.

👉 Schedule a conversation: https://www.skytide.com/contact-us/