Cyber insurance has become a near-standard discussion point in private equity due diligence and portfolio governance. It offers critical financial protection and access to expertise, but coverage is narrowing, premiums are rising, and exclusions are expanding. For PE firms, cyber insurance can no longer be treated as a substitute for strong cyber controls. Instead, it must be integrated into a broader risk management strategy that emphasizes prevention, resilience, and value creation. 

Benefits of Cyber Insurance 

• Financial Protection
  • Coverage for costs associated with breaches, ransomware, and data loss—including investigation, recovery, legal defense, regulatory fines, and crisis communications. 

• Risk Transfer
  • Shifts part of the financial burden of cyber events to the insurer, helping stabilize cash flow in the face of unpredictable risks. 

• Access to Expertise
  • Policies often include incident response retainers—access to forensic specialists, breach counsel, and PR experts—which can accelerate containment and reduce damage. 

• Regulatory Support
  • Insurance can help address fines and penalties under GDPR, CPRA, NIS2, and SEC disclosure rules, easing compliance exposure for portfolio companies. 

Limitations of Cyber Insurance 

1. Business Interruption Limitations
   • Policies may cover lost income during downtime but often exclude “silent losses” such as reduced productivity, missed opportunities, or long-term reputational erosion.
   • Many contracts also define a waiting period (e.g., 8–12 hours of downtime) before coverage kicks in, meaning shorter but costly disruptions may not be reimbursed.
2. Supply Chain and Third-Party Breaches
   • Coverage for third-party vendor failures is often limited or capped, even though most incidents now involve supply chain compromises.
   • A PE-backed company might rely heavily on a SaaS or cloud provider—yet if that provider suffers an outage, recovery costs and revenue losses may fall outside policy scope.
3. Regulatory and Geographic Variability
   • Some policies exclude certain jurisdictions or regulatory penalties, creating a mismatch for PE portfolios with operations spanning the U.S., EU, and APAC.
   • For example, PortCos could face GDPR or NIS2 penalties that exceed or fall outside the insurer’s coverage definitions.
4. Data Restoration vs. Data Value
   • Policies may reimburse costs to restore data, but not the value of the data lost (e.g., intellectual property, trade secrets, or proprietary designs).
   • For PE portfolios in manufacturing, pharma, or tech, this gap can be material.
5. Evolving Threat Exclusions
   • As threat actors innovate (e.g., AI-driven deepfake fraud, OT/ICS attacks), insurers may exclude these categories until actuarial models catch up—leaving firms exposed to “emerging risks not yet covered.”

Selecting the Right Coverage 

1. Assess Cyber Risks
   • Conduct risk assessments across the portfolio, quantifying potential exposure to ransomware, supply chain breaches, and regulatory penalties.
2. Evaluate Policy Options
   • Seek broad coverage that includes ransomware, regulatory penalties, business interruption, and supply chain disruption.
3. Engage a Specialist Broker
   • Brokers with cyber expertise can negotiate favorable terms and explain nuances such as war exclusions and retentions.
4. Review Exclusions
   • Pay particular attention to clauses on nation-state attacks, insider incidents, and third-party vendor breaches. Consider endorsements to fill gaps.

Integrating Insurance into a Broader Strategy 

• Strengthen Cyber Maturity
  • Implement frameworks such as NIST CSF 2.0 or CIS Controls v8.1 to ensure insurers view PortCos as insurable and low risk. 

• Audit and Test Regularly
  • Perform audits, tabletop exercises, and penetration tests to validate controls and demonstrate maturity during renewals. 

• Foster a Security Culture
  • Train employees across all PortCos on phishing, ransomware prevention, and incident reporting. 

• Adjust Coverage Continuously
  • Reassess coverage annually as risks evolve and portfolio composition changes. 

Conclusion 

Cyber insurance is a valuable safety net, but it is not a silver bullet. With premiums rising and exclusions tightening, insurers now demand evidence of mature controls before offering coverage. For PE firms, the path forward is clear: treat insurance as one layer in a broader resilience strategy, not a replacement for it. By aligning cyber insurance with robust governance and proactive investment in controls, firms can protect value, ensure compliance, and strengthen exit readiness. 

About PIP 

PIP executes hundreds of buy-side cyber due diligence projects each year and delivers portfolio-wide assessments aligned to leading frameworks. Our cyber maturity model for PE supports portfolio companies across the hold period—improving resilience, aligning with insurer expectations, and preparing for successful exits. 

Our Client Services team is ready to help you strengthen your cyber risk strategy today.