Why Relying On Ransomware Insurance Could Backfire: 6 Key Reasons

Sebastian Straub, Principal Solution Architect at N2WS, outlines six key reasons why ransomware insurance may fall short, urging organisations to reconsider their reliance on it as the sole defence mechanism.

As ransomware attacks continue to escalate, businesses are increasingly turning to ransomware insurance for protection. By 2024, 90% of companies with over 100 employees had adopted some form of cyber insurance. However, despite its growing prevalence, ransomware insurance is not the ultimate safeguard it is often perceived to be.

Sebastian Straub, Principal Solution Architect at N2WS, outlines six key reasons why ransomware insurance may fall short, urging organisations to reconsider their reliance on it as the sole defence mechanism.

6 key reasons relying on ransomware insurance isn’t enough

Here are six key reasons why ransomware insurance might fail companies in times of crisis.

1. A flawed solution encouraging crime

The growing prevalence of ransomware insurance has inadvertently created a system that may perpetuate the very problem it aims to address. Ann Neuberger, U.S. Deputy National Security Adviser, shared her concerns:

“Some insurance company policies — for example covering reimbursement of ransomware payments — incentivise payment of ransoms that fuel cyber crime ecosystems. This is a troubling practice that must end.”

By enabling ransom payments, these policies inadvertently strengthen the ransomware ecosystem, providing cybercriminals with resources and motivation to continue their attacks

2. Non-covered losses leave gaps in protection

While ransomware insurance often covers immediate financial losses, it fails to address some of the most critical impacts of a cyberattack. Businesses frequently find themselves without coverage for, loss of intellectual property, loss of future profits due to damaged reputation or operational downtime, damages resulting from attacks initiated by malicious insiders.

These omissions can leave companies with substantial, long-term financial burdens despite having insurance.

3. Third-party coverage risks

Many organisations purchase first-party cyber insurance policies, believing they are fully protected. However, these policies often do not cover third-party claims, leaving businesses vulnerable to lawsuits and financial demands from clients, partners, and other stakeholders affected by the breach.

4. Challenges of silent cyber insurance

Some companies depend on "silent cyber insurance," where generic property insurance policies are presumed to cover cyber threats. However, in practice, this coverage often results in protracted legal disputes. Many of these cases extend for years and may conclude with minimal or no payout to the affected businesses.

5. Payout limits fail to address catastrophic losses

Even the most extensive policies may not cover the full extent of damages caused by major cyberattacks. For instance, the Change Healthcare attack of 2024 resulted in losses amounting to $1.5 billion—far exceeding the payout limits of most insurance policies. This highlights the inadequacy of ransomware insurance in mitigating large-scale financial risks.

6. No assurance of data recovery

While insurance may cover certain costs, it does not guarantee the recovery of lost data. Alarmingly, 92% of businesses fail to fully recover their data, even after paying a ransom. This limitation emphasises the need for businesses to focus on robust preventive measures and backup systems rather than relying solely on insurance.

Insights for businesses and policymakers

Sebastian Straub and other industry experts stress the importance of understanding the limitations of ransomware insurance and prioritising comprehensive cybersecurity strategies. Businesses are encouraged to adopt preventive measures such as:

• Employee training to reduce the risk of phishing attacks.
• Regular backups of critical data.
• Multi-layered security systems to detect and mitigate threats.

In addition, policymakers and insurers need to address the systemic issues in ransomware insurance that inadvertently enable cybercriminals.