Is cyber insurance necessary for my business?
- Brandon Alsup
- May 17, 2022
- 6 min read
Updated: Aug 18
Updated August 18, 2026
Most businesses today rely on email, cloud applications, online banking, customer or employee data, and technology to operate.
So, is cyber insurance actually necessary?
For many businesses, yes—or at minimum, it deserves serious consideration.
But the best reason isn't simply that “everyone gets hacked.”
Cyber insurance is fundamentally a risk-transfer decision.
The real question is:
If your business experienced a serious cyber incident tomorrow, could you comfortably absorb the financial impact yourself?
If the answer is no—or even “I'm not sure”—cyber insurance is worth discussing with your insurance broker.
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“Why Would a Hacker Target My Business?”
This is still one of the most common objections we hear.
A small business owner may reasonably think:
We're not a bank. We're not a hospital. We're not a Fortune 500 company. Why would anyone bother attacking us?
The problem is that many cyberattacks don't begin with an attacker choosing one particular business.
Attackers scan the internet for vulnerable systems, send phishing messages at scale, steal credentials, exploit unpatched software, and automate significant portions of the attack process.
Verizon's 2026 Data Breach Investigations Report found that 31% of breaches now begin with exploitation of software vulnerabilities, while ransomware appears in 48% of breaches. Verizon also found that smaller organizations are disproportionately affected by ransomware.
Munich Re similarly reports that attackers increasingly use automated methods against large numbers of organizations and that small and midsized businesses can be especially vulnerable because they typically have fewer resources available for cybersecurity and recovery.
The Real Question: How Much Cyber Risk Can Your Business Absorb?
Most companies don't buy property insurance because they expect their building to catch fire next week.
They buy it because a major fire could create a financial loss they don't want to absorb themselves.
Cyber insurance can be viewed the same way.
A cyber incident can create several different kinds of financial exposure.
1. Could Your Business Handle Several Days of Downtime?
Think about what would happen if employees suddenly lost access to:
Email
Files
Accounting systems
Line-of-business applications
Customer records
Scheduling systems
Cloud platforms
Phones or communications
Some companies can operate manually for several days.
Others begin losing money almost immediately.
Your dependence on technology may be more important to the cyber-insurance decision than the amount of sensitive data you store.
2. Could Your Business Absorb a Large Fraudulent Payment?
Not every major cyber loss involves ransomware or stolen data.
Business email compromise and funds-transfer fraud remain major sources of cyber-insurance claims.
Coalition's 2026 claims report found that business email compromise and funds-transfer fraud accounted for 58% of the claims it observed, and the average loss for funds-transfer fraud originating from a business email compromise was $112,000.
Think about your own organization.
What is the largest wire transfer, ACH payment, invoice, or vendor payment an employee might reasonably authorize?
If losing that amount would be financially painful, that belongs in your cyber-insurance conversation.
3. Do You Hold Information About Other People?
You don't need millions of customer records to have a privacy exposure.
Businesses routinely maintain information about:
Employees
Customers
Vendors
Bank accounts
Social Security numbers
Payment cards
Health information
Tax records
Confidential business information
If that information is exposed, the cost may extend beyond fixing the technology.
Legal counsel, forensic investigation, notification requirements, regulatory response, and claims from affected parties can all become part of the incident.
Our article What Does Cyber Insurance Cover? And Not Cover? goes into those costs in more detail.
4. Do You Depend on Outside Technology Providers?
Using cloud services does not eliminate your cyber risk.
In fact, most modern businesses depend heavily on outside technology companies.
Think about what would happen if a critical:
Cloud platform
Software provider
Payment processor
Managed service provider
Hosting company
Communications provider
became unavailable.
Your own network might be perfectly healthy while your business is still unable to operate.
This is one reason your broker may discuss coverage such as dependent business interruption when evaluating your risk.
5. Do Customers or Contracts Require Cyber Insurance?
Sometimes the decision isn't entirely yours.
Customers, government contracts, lenders, partners, or vendors may require specific cyber-insurance coverage before doing business with you.
That requirement can be especially important for organizations handling another company's sensitive information or accessing its systems.
If cyber insurance appears in your contracts, don't simply buy the minimum limit and move on. Have your broker make sure the policy actually satisfies the contractual requirement.
When Might Cyber Insurance Not Be Necessary?
There are businesses with genuinely low cyber exposure.
A company may reasonably decide not to purchase cyber insurance if it has very little dependence on technology, holds almost no sensitive information, conducts few electronic financial transactions, could operate through an extended technology outage, and has enough financial resources to comfortably absorb the remaining risk.
Some larger organizations also intentionally self-insure portions of their cyber risk because they have the financial resources and risk-management structure to do so.
But that is different from saying:
“We're small, so there's nothing worth insuring.”
For most modern businesses, completely avoiding digital risk is difficult.
Even a relatively traditional company probably has employees, email, online banking, payroll, accounting software, cloud applications, customer information, or vendors.
Munich Re describes insurance as the final piece of a broader cyber-risk strategy: organizations reduce risks they can control, prepare to respond and recover, and then use insurance to transfer some of the remaining financial risk.
That is a much better way to think about the decision.
Four Common Misconceptions About Cyber Insurance
When we first developed this article, Nickie Tran, President of IQ Risk Insurance Services, pointed out several misconceptions she regularly heard from businesses.
They are still worth addressing.
“We're too small for hackers to care about.”
As we have already explained, small businesses aren't immune.
Many attacks are opportunistic or automated, and Verizon's current breach research specifically notes that smaller organizations are disproportionately affected by ransomware.
“Our IT security is good, so we don't need insurance.”
Strong cybersecurity should reduce the likelihood and severity of an incident.
It cannot eliminate risk entirely.
Security and insurance have different jobs:
Cybersecurity reduces risk. Cyber insurance transfers part of the remaining financial risk.
“Everything is in the cloud, so the cloud provider is responsible.”
Cloud providers secure their own infrastructure according to their agreements and responsibilities.
That does not automatically eliminate your organization's exposure to compromised accounts, phishing, fraudulent transfers, employee mistakes, data privacy issues, outages, or other cyber events.
Moving technology to the cloud changes the risk. It doesn't make the risk disappear.
“We already have business insurance.”
Don't assume another business policy provides the same protection as cyber insurance.
Coverage varies dramatically by insurer and policy.
Ask your broker specifically what your existing policies would—and would not—cover following ransomware, a data breach, fraudulent transfer, or prolonged technology outage.
A Simple Cyber Insurance Decision Test
If you're still wondering whether your business should consider cyber insurance, answer these questions:
Would several days without our technology materially hurt the business?
Would losing one large electronic payment cause serious financial pain?
Do we possess customer, employee, financial, health, or other sensitive information?
Could a cyber incident expose us to lawsuits, notification expenses, or regulatory costs?
Do we depend heavily on cloud platforms or outside technology providers?
Would paying for legal counsel, forensic specialists, incident response, and recovery create a meaningful cash-flow problem?
If you answered yes to one or more of those questions, cyber insurance deserves a conversation with your insurance broker.
That doesn't tell you exactly what policy to buy or how much coverage you need.
Those are separate questions.
For those, see:
Cyber Insurance Is Not a Cybersecurity Strategy
Buying cyber insurance doesn't make a business secure.
And having excellent cybersecurity doesn't necessarily eliminate the usefulness of insurance.
The two solve different parts of the same problem.
A resilient business tries to prevent what it can, prepare for what gets through, and transfer financial risks it doesn't want to carry alone.
If you decide to pursue cyber insurance, get the application from your broker early and have your IT or cybersecurity provider verify the technical answers.
Our What Are the Requirements for Cyber Insurance? guide explains what that process looks like.
You can also use Kosh's cybersecurity assessment to identify areas of your environment that may need attention.
Disclaimer
The information contained in this communication is intended for limited use for informational purposes only. It is not considered professional advice, and instead, is general information that may or may not apply to specific situations. Each case is unique and should be evaluated on its own by a professional qualified to provide advice specifically intended to protect your individual situation. Kosh is not liable for improper use of this information.
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