Cyber incidents are among the most complex claims scenarios for insurers. Ransomware attacks, in particular, can paralyze entire IT infrastructures—with enormous financial consequences. Insurers for affected companies must be able to make quick decisions. To do so, they need, among other things, technical expertise, which requires close collaboration among various disciplines.
Unlike in many traditional lines of insurance, a cyber incident does not follow a standardized pattern. As a result, traditional claims adjustment processes often reach their limits.
Why does claims settlement for cyber incidents pose particular challenges for insurers?
Cyber claims differ fundamentally from traditional property or liability claims. Each incident has its own technical causes, unique consequences, and different legal frameworks. Insurers must therefore assess each claim individually and can rely on standardized processes only to a limited extent.
The dynamic nature of a cyberattack is particularly challenging. The impact of a cyber incident often changes within a matter of hours. What starts as a localized security incident can quickly spread to core business processes and cause significant operational disruptions. For this reason, claims handling should be closely aligned with the principles of security incident management.
Claims managers should conduct technical analyses, legal assessments, and economic decisions simultaneously rather than sequentially. This is the only way to identify risks early on and limit consequential damages.
What impacts must insurers assess following a cyber incident?
Following a cyber incident, insurers must assess not only the technical damage but, above all, its impact. This impact ranges from data breaches and business interruptions to reputational damage and regulatory consequences. Since cyberattacks use different entry points and often affect business-critical systems, each loss scenario is unique.
Claims managers must first determine and assess the actual consequences of a cyber incident. Only on this basis can the extent of the damage and the potential insurance benefits be evaluated.
Why does the variety of attack scenarios make it more difficult to settle claims?
Cyber incidents can have a wide variety of causes and consequences. Ransomware attacks can encrypt entire corporate networks, DDoS attacks can paralyze key sales channels, and compromised email accounts can cause immediate financial losses.
Insurers must therefore assess the direct—usually technical—and many indirect, economic damages resulting from the cyber incident.
What information do insurers need immediately after a cyber incident?
Insurers first need clarity on which systems are affected, what data may have been compromised, and what immediate measures have already been taken. This information forms the basis for all further decisions regarding the claim.
For claims managers, it is particularly important to determine the extent to which business processes have been disrupted and what risks still exist. Only in this way can insurers make an informed assessment of insurance coverage. The initial information determines which benefits are generally eligible and how high the claims reserve must be set.
The quality of the initial damage assessment often influences the entire subsequent claims settlement process.
Why should the root cause analysis be conducted promptly?
Following the analysis of the attack, insurers should also examine how the policyholder’s behavior affected the claims history. Of particular importance here are security measures, known vulnerabilities, or information provided at the time the policy was issued.
Of particular importance here are the pre-contractual disclosure obligations. Incorrect information regarding the IT security situation or inadequate security measures can affect the insurer’s obligation to provide coverage. Therefore, it is crucial to secure relevant information at an early stage.
In practice, this often creates a conflict. Companies want to restore their systems as quickly as possible. At the same time, hasty recovery measures can destroy important evidence. If technical evidence is lost, it becomes significantly more difficult to reconstruct the sequence of events leading to the loss at a later date. This illustrates just how closely claims adjustment and digital forensics are intertwined.
What obligations must policyholders fulfill after a loss occurs?
Following a cyber incident, insurers regularly verify whether contractual obligations have been met. These include, for example, promptly reporting the incident, cooperating in the investigation of the incident, and coordinating essential countermeasures.
Individual decisions made during crisis management can also be relevant. For example, insurers assess whether measures to restore the system, the procurement of new hardware, or certain external services were necessary and economically sound. A key factor in this assessment is often whether these measures were coordinated with the insurer.
Claims managers should be able to understand the entire decision-making process.
How can insurers actively manage cyber incidents?
Active claims management has a significant impact on the success of the claims settlement process. Insurers often achieve good results when they are involved in the claims process at an early stage and establish clear lines of communication among all parties involved.
This includes, in particular, close collaboration with incident response service providers acting on behalf of the policyholder. Insurers should provide technical guidance on key measures and continuously ensure they align with the terms of the insurance contract.
In practice, active claims management means continuously balancing technical measures, legal requirements, and economic interests.
What are some common issues that delay the claims settlement process in the event of a cyber incident?
Incomplete documentation
A common problem is incomplete documentation by external service providers. If there is a lack of transparent decision-making criteria, complete cost breakdowns, or a structured description of the measures taken, insurers face a significant information gap.
Technical Complexity
Added to this is the technical complexity of many incident reports. Even when comprehensive reports are available, the insights they contain cannot always be readily applied to the claims settlement process. Claims departments therefore often require additional technical expertise to be able to thoroughly assess the causes of attacks and the appropriate countermeasures.
Cost-Effectiveness and Loss Mitigation
Another cost factor arises when evaluating recovery measures. System restores, hardware replacements, or the use of external specialists can sometimes result in significant expenses. Insurers must therefore determine whether the measures taken were necessary, appropriate, and economically justifiable.
What role do legal and regulatory requirements play in the settlement of cyber claims?
At the same time, regulatory requirements play an important role. Data protection reporting obligations, requirements under NIS-2, and industry-specific regulations must be taken into account and documented in the claims process. This creates an additional need for coordination between technical and legal experts at insurance companies.
What Makes a Successful Claims Settlement in Cyber Incidents? A Summary
Today, claims settlement for cyber incidents is a multidisciplinary task. Technical analyses, legal assessments, and business decisions are closely intertwined and collectively determine the success of the claims settlement process.
For insurers, this means identifying risks early on, actively managing measures, and documenting decisions in a transparent manner. Active claims management helps prevent unnecessary claims payments while effectively supporting policyholders in managing a cyber incident. This is precisely the key to success in modern cyber claims settlement.
Co-author: Julian Krautwald, Partner, Financial Services, Technology & IT Compliance, Practice Lead for Detection & Response, KPMG AG Wirtschaftsprüfungsgesellschaft
See also:
Reporting Deadlines for Cyber Incidents Under the GDPR, BSIG, and CRA—Every Hour Counts – KPMG-Law
Guest Article in *Versicherungsmagazin*: D&O Insurance—A Legal Safety Net in Turbulent Times—KPMG-Law
NIS2: How Energy Providers Must Protect Themselves Against Cyberattacks – KPMG-Law
Implementing NIS 2: How Companies Must Protect Themselves Against Cyberattacks – KPMG-Law
