What is cyber insurance, and does your business need it?

Wondering if you need cyber insurance coverage? You’re not alone. Many organisations face a similar decision, and in most cases, the answer is yes.

Cyber insurance is a policy that helps businesses cover financial losses resulting from a cyber attack or data breach. Just as a business takes out property insurance to protect physical assets, cyber insurance protects digital assets and the operations that depend on them.

UK insurers paid out £197 million in cyber claims in 2024, a 230% increase on the year before. That figure reflects both the rising volume of cyber incidents and the growing number of UK businesses that had cover in place when an attack occurred.

If you are reading this because you have experienced a cyber security incident and are unsure how serious it is, contact Zensec immediately.

What does a cyber insurance policy cover?

Most cyber insurance policies divide their coverage into two categories: first-party and third-party. Understanding the differences matters when comparing policies.

First-party cover

This form of cyber security insurance pays for losses your own business suffers as a direct result of a cyber event.

This typically includes business interruption losses when systems are down, forensic investigation costs to establish what happened and how, data restoration and recovery, costs of notifying affected parties after a data breach, legal assistance in the immediate aftermath, and extortion payments if a ransom demand is made.

Some policies also include crisis communications support and reputation management.

Third-party cyber insurance cover

Third-party cover protects your business against claims made by other parties resulting from a cyber breach.

If customer data is compromised and those customers pursue legal action, or if a regulator opens an investigation, third-party cyber insurance covers legal costs, compensation payments, and regulatory fines where these are insurable under UK law. This is sometimes called cyber liability insurance.

A standalone cyber policy will generally include elements of both. Some businesses assume their existing general liability insurance or professional indemnity cover extends to cyber incidents.

In most cases, it does not, or covers only a narrow range of scenarios. If you are unsure, your insurance broker should be able to confirm what your current policies actually include.

Which cyber incidents do insurers typically not cover?

It is equally important to know what most cyber insurance policies exclude. Deliberate acts by the business itself, losses caused by known poor security practices that were not addressed, and incidents involving unencrypted data on lost or stolen devices are common exclusion categories. Some policies exclude nation-state attacks or incidents that fall under the definition of an act of war.

The policy wording matters. Two policies marketed under similar names can cover very different things, and the exclusions are where the differences tend to be sharpest.

Does your business need cyber insurance?

The short answer for most UK businesses is yes, and the reasoning is straightforward. Phishing attacks, ransomware attacks, and data breaches are the most common cyber threats facing UK organisations, and none of them discriminates by business size. According to the UK Cyber Security Breaches Survey 2025, 43% of UK businesses experienced a cyber breach or attack in the past twelve months.

Small businesses are not low-priority targets. They often have less robust security controls than larger organisations, making them easier to compromise. Professional services firms, retailers, healthcare providers, and anyone handling sensitive information or customer data have real exposure.

The financial losses from a serious cyber incident can be significant: business disruption while systems are offline, legal fees, forensic investigation costs, and compensation payments to affected parties. For many businesses, absorbing those costs without cover would be extremely difficult. Cyber insurance exists to close that gap.

Even for businesses with strong cyber security in place, insurance provides a backstop. No security programme eliminates all cyber risks, and the incident response support that comes bundled with many policies, including access to legal services, forensic investigators, and communications specialists, can be as valuable as the financial protection itself.

What insurers look for

The cyber insurance market has become considerably more rigorous in its underwriting process over the past few years. Insurers are not simply writing policies for any business that applies. They want to understand the security controls an applicant has in place before they offer cover. The strength of those controls directly affects both the availability and the cost of a policy.

The most commonly assessed areas include multi-factor authentication on critical systems and remote access, regular patching and vulnerability management, backup and data recovery procedures, endpoint protection, and whether the business has tested its incident response capabilities. Businesses with demonstrably poor security measures may find cover is refused, expensive, or subject to significant exclusions.

This creates a practical link between cyber security and cyber insurance that is worth taking seriously. Improving your security posture before approaching insurers is not just good practice; it also directly affects the cover you can access and the cost.

Cyber Essentials certification is one way to demonstrate a baseline level of security controls to an insurer. UK organisations with a turnover under £20 million that achieve Cyber Essentials certification are also entitled to a free cyber liability insurance policy arranged through IASME, with a £25,000 limit of indemnity. For most businesses, that limit will not be sufficient to cover a serious incident, but it is a meaningful starting point and demonstrates that the government considers certified organisations to be lower risk.

Before you buy cyber insurance

Before approaching cyber insurers, it is worth understanding your own risk profile:

• What data does your business hold?
• What would the impact be if your systems were offline for 48 hours?
• What is your current security baseline?

A cyber security risk assessment gives you a clear picture of your exposure before you enter the underwriting process, which means you can approach insurers with accurate information and compare policies against your actual needs rather than generic assumptions.

Cyber risk management and cyber insurance work together: the goal is not to rely on insurance in place of good security, but to use both as part of a coherent approach to managing cyber risks. Insurance covers what happens when security controls are not enough. Security controls reduce the likelihood that you need to claim.

FAQs

How much does cyber insurance cost in the UK?

It depends on your business, your annual turnover, the data you handle, and the security controls in place. A small business can spend a few hundred pounds each year for basic cover, while larger organisations that are more vulnerable to hacks can pay thousands.

The insurance provider will look at your backup procedures, network security controls, and whether you use multi-factor authentication before calculating the cost of your cyber cover.

Is cyber insurance worth it for small businesses?

Small businesses are frequent targets of criminals, and investing in cyber coverage can be a lifeline.

Even a minor cyber incident can lead to significant losses through downtime, lost revenue, legal fees, forensic investigations, and customer notification requirements. Cyber insurance is there to decrease the financial impact of these incidents.

Does cyber insurance cover ransomware attacks?

Most cyber insurance policies will include coverage for ransomware-related incidents, but the level of protection can vary. Your coverage might include system recovery, business interruption losses, legal support, and forensic investigations from external security teams.

Do cyber insurance products cover phishing attacks?

Yes, most insurance products do. Phishing incidents include business email compromise, credential theft, and data breaches.

Can a business be refused cyber insurance?

If an insurance provider feels that you don’t have adequate security measures in place, they can refuse insurance. Substandard procedures make it easier for attackers to gain access, thereby increasing the insurer’s risk.