Cyber extortion coverage is an insuring clause or policy designed specifically to cover costs arising from an extortionist holding applications or data hostage or threatening a cyber attack. Typically available within a larger cyber insurance policy, although not all cyber policies offer this coverage.
Every year organizations lose billions to cyber extortion as malicious actors increasingly targeted organizations of all sizes, holding their digital operations hostage. Fortunately, cyber extortion coverage may alleviate some of the associated costs. Read on to learn more about this important coverage.
THE RISK:
What is cyber extortion?
Cyber extortion is a digital form of blackmail in which attackers threaten to damage, disable, or expose a business’s data, systems, or networks unless a ransom is paid or demands are met. Common tactics include ransomware, threats to leak confidential information, DDoS attacks, or system disruption. Essentially these are a modern version of the classic “pay up or else” extortion seen in movies, much like the protection racket in The Godfather, but executed through cyberspace.
CYBER EXTORTION IS COSTLY!
Victims face risk of both financial and reputational damage, with threats ranging from data destruction and blocked system access to public exposure of sensitive information. Typically costs include much more than a ransom payment (if made). Other costs include business downtime, loss of sales, legal fees, crisis management fees, recovery costs, and potentially, lawsuits, regulatory penalties, and more. Add up all the various costs and the amount can easily end up in the seven digits depending on the extent of the breach. In 2024 alone, businesses lost billions to cyber extortion as malicious actors increasingly targeted organizations of all sizes, holding their digital operations hostage.
THE COVERAGE:
Insurance coverage for cyber extortion
Cyber Extortion Coverage is an insuring clause or policy designed specifically to cover costs arising from an extortionist holding applications or data hostage or threatening a cyber attack. Cyber insurance is meant to cover losses resulting from breaches to a company’s network security or the private information they hold for others. A cyber extortion incident is often both of those things.
Many insurers include cyber extortion coverage as a part of their standard cyber policy. For some others, cyber extortion coverage can be added as an extension. And yet others may not offer it at all. There is very little consistency in the insurance market as to what is included in a cyber policy.
Among those insurers that do offer some sort of cyber extortion coverage, the coverage can vary significantly. The conclusion for buyers is that you cannot simply purchase a cyber insurance policy and assume you now have coverage for cyber extortion losses. You also need to review the policy carefully to ensure that it actually includes everything you need.
What coverage do you need?
Victims hit by a cyber extortion attack can experience a financial loss that is easily in the millions of dollars. Certainly, the ransom amounts can be substantial, but the fallout from an attack can also result in many additional and sizable costs, depending on the extent of the breach. The role of insurance is to protect the insured party from suffering financial loss as a direct result of:
- an insurable event over which they have no control;
such as, an extortion event leading to ransom payments (where legal), system recovery costs, business interruption losses, etc.; and/or - third-party claims;
for example, a lawsuit from a client claiming they lost money because the insured didn’t act responsibly.
Finding cyber extortion coverage in your insurance policy
Cover for direct costs
Direct costs incurred by the insured organization in responding to a cyber incident affecting its own systems or data:
- Cyber Incident Response – covers expenses related to investigating and managing the attack such as:
- Investigation Costs – costs associated with identifying and mitigating the attack.
- Data Recovery or Recreation – costs related to recovering or recreating data that has been lost or destroyed.
- Notification and Regulatory Expenses – associated costs if the extortion is accompanied by a data breach.
- Ransom/Extortion Payment – covers ransom payments (subject to legality and policy terms). Not all policies include this cover. Those that do ofter require insurer pre-approval and may also have restrictions, especially re: cryptocurrency.
- Crisis Management Services – covers the cost of hiring crisis communication services to help manage public messaging and restore customer trust after an incident.
- Business Interruption – covers revenue loss due to system/operational shutdowns. Covers income lost due to operational downtime caused by a cyber incident, such as ransomware disabling key systems.
- Regulatory Proceedings – covers costs incurred in responding to regulatory investigations or enforcement actions following a cyber event (e.g., CASL, GDPR, HIPAA, or other privacy laws).
Cover for liabilities
Liability coverage for those legal defence and settlement costs incurred if the insured’s cyber extortion incident causes harm to others:
- Privacy Liability – covers third-party claims for damages arising from unauthorized access to their private and confidential information.
- Network Security Liability – covers third-party claims for damage arising from computer and network security breaches.
- Regulatory coverage – covers the insured’s liability to regulators for privacy breaches.
- Pollution Liability – covers environmental pollution loss caused directly by a cyber event (e.g., ransomware disabling a system that manages hazardous materials).
Finally, one should also pay attention to additional services provided by insurance companies such as risk mitigation consulting, technical assessments, network monitoring and, in the event of an attack, an experienced support team.
What’s not covered
- Prior knowledge – coverage is excluded if a senior executive knew or reasonably should have known of a cyber incident or vulnerability likely to lead to a claim before the policy’s start date.
- Conduct – claims resulting from intentional criminal, fraudulent, or dishonest acts such as collusion with attackers are excluded. This exclusion typically only applies after a final legal ruling confirms such behavior.
- Negligence and poor cybersecurity practices – Claims may be denied if the insured failed to implement basic cybersecurity controls, failed to maintain updates, or ignored known vulnerabilities.
- Contractual Liabilities – Losses tied to promises made in contracts—such as service-level agreements with third parties—are typically excluded unless specifically covered by endorsement.
- Betterment – insurance aims to restore systems to their pre-incident state, not to upgrade them. Costs for system improvements beyond original functionality are excluded, though some policies allow limited reimbursement (e.g., up to 25%) if upgrades enhance security.
- Bodily injury / property damage – cyber policies do not cover physical injury to people or damage to tangible property. However, “bricking” coverage, where devices are rendered unusable by malware, may be added back by endorsement. Claims for emotional distress or reputational harm arising from the incident may be covered depending on the policy.
- War and terrorism – losses caused by physical acts of war or state-sponsored military operations are excluded. However, cyberterrorism is often explicitly carved out and may still be covered.
- Sanctions and illegality – payments to sanctioned individuals, groups, or jurisdictions, such as ransom paid in violation of government sanctions, are not covered. Policies may be partially voided if compliance becomes illegal during the policy term.
Before you buy cyber extortion coverage
- Ensure you understand your organization’s digital risks.
- Don’t assume that a cyber policy includes cyber extortion coverage. You may need to ask for it. Some may not provide it at all.
- Review the policy insuring agreements and terms carefully to ensure the policy fully covers your needs.
- Review the policy limits and exclusions. Don’t hesitate to ask for changes or alternatives.
- Ask about incident response services (see breach coach article link below).
Key takeaways
- Cyber extortion is a form of cybercrime where attackers threaten to damage, disable, or release a victim’s digital assets—such as data, systems, or networks—unless a ransom is paid.
- Cyber extortion coverage is included in some cyber policies, but not all.
- Check your policy for related direct costs coverage and liability coverage.
- Always read the fine print – limits, exclusions, etc.
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