Business Interruption Coverage in a Cyber Insurance Policy

What is Business Interruption?

Today a lot of business is conducted online. Any disruption in network systems due to a cyberattack or a ransomware attack on the company’s network systems will lead to disruption of business operations. This disruption of business operations can lead to loss of production, revenue and profits for the impacted company.

So, a business should be prepared to face such instances and today Cyber Liability Insurance Policy offers Business Interruption Coverage.

What is Business Interruption Coverage in a Cyber Insurance Policy?

Cyber Insurance Policies provide Business Interruption Coverage or BI Coverage. Business Interruption Coverage in a Cyber Insurance Policy provides coverage for Business Interruption Loss (loss of profits) faced by the business on account of disruption in business operations due to a Cyberattack on the company’s network systems. Business Interruption is a first-party loss in a Cyber Insurance Policy.

Business Interruption Loss is defined as Losses suffered and costs incurred by the Insured Entity during the indemnity period, directly and exclusively as a result of an Insured’s Systems Disruption or an Outsourced Systems Disruption (if covered).

Companies need to consider the following factors when analysing Business Interruption Coverage in a Cyber Insurance Policy:

What are the Coverage Limits under Business Interruption Coverage in a Cyber Liability Insurance Policy?

Coverage Limits under Business Interruption Cover in a Cyber Insurance Policy are the limits upto which policy will pay the loss of profits faced by the business. For example, if a Cyber Insurance Policy has a limit of Rs10 Crores for Business Interruption Cover, then the Policy will pay a maximum amount of Rs10 Crores for Business Interruption Loss.

What is Waiting Period under Business Interruption Coverage in a Cyber Liability Insurance Policy?

Waiting Period under Business Interruption Coverage in a Cyber Insurance Policy is the amount of time for which the business operations have to be disrupted before the Cyber Insurance Policy will start paying out the loss under Business Interruption Cover. Thus, Waiting Period means the time period that has to pass before the Business Interruption Cover begins. The intention of the insurance company to impose a waiting period for Business Interruption Coverage is to avoid providing coverage for disruptions of short time periods which may happen frequently.

Most Cyber Insurance Policies have a waiting period of 24 hours means that the business operations have to remain disrupted for a minimum of 24 hours before the Policy Cover gets triggered.

What is Indemnity Period under Business Interruption Coverage in a Cyber Liability Insurance Policy?

Indemnity Period, also known as Restoration Period, under Business Interruption Coverage in a Cyber Insurance Policy is the amount of time for which the policy covers income loss.

Many Cyber Insurance Policies have an indemnity period of 6 months. That means that the Cyber Policy will cover business interruption losses for a period of upto 6 months and if the business operations remain interrupted for more than 6 months, then the Policy will not pick up the loss after the period of 6 months is over.

What is Contingent Business Interruption under Business Interruption Coverage in a Cyber Liability Insurance Policy?

Cyber Insurance Policies also provide Contingent Business Interruption Coverage. Contingent Business Interruption Coverage is an important coverage in Cyber Insurance Policy and provides reimbursement for Business Interruption Loss cause to the Policyholder due to a disruption in operations of a key vendor, supplier on account of a Cyberattack.

Issues to consider in Business Interruption Coverage in a Cyber Insurance Policy

Determination of Indemnity Period

The major issue with Business Interruption Coverage in a Cyber Insurance Policy is the determination of business interruption period as the Period of Indemnity determines the time period for which compensation is payable to the Policyholder. A Cyber Expert will help determine the Indemnity Period.

Definition of Business Interruption

Another important point to consider is what events are covered under the definition of Business Interruption.

Is the Cyber Insurance Policy triggered only with complete shutdown of the business or even partial shutdown is covered? Or is the Business Interruption covered only if the business shutdown happens due to a Cyberattack or whether the shutdowns because of human errors on account of negligent acts or errors in the active maintenance, operation, programming or update of the Insured’s Systems which results in a Security Breach are also covered?

Final Take

The landscape of Cyber Threats and Cyber Insurance is constantly evolving. The broader Cyber Liability Insurance Policy trends and statistics guide explains why business interruption, data breach, and ransomware events are becoming larger loss drivers. Qian Insurance Broking is an expert insurance broker who is well versed in Cyber Insurance Coverages as well as exclusions in a Cyber Insurance Policy. If you wish to purchase a Cyber Liability Insurance Policy, you can email us at 📧 insurance@qian.co.in or call us on 📞
022-35134695. We would be glad to assist you.