As the cyber insurance landscape evolves at a rapid pace, underwriter diligence has increased. Many insurance carriers have become more precise with their questions, especially those related to the implementation and utilization of multifactor authorization and related risk mitigation strategies. Improperly responding to application questions can jeopardize coverage in more ways than one.
It can be very difficult to respond to the complex, multi-part questions that are part of the application process. A straightforward “yes” or “no” may not apply because today’s technology infrastructure can be anything but straightforward. Carriers rely on these specific responses to make underwriting decisions and grant coverage. Application responses can trigger sub limits and restrictions in coverage and can also impact pricing.
To ensure accurate responses when applying for cyber insurance, it’s important that company leadership understands the intricacies of their network and cybersecurity infrastructure. Complex questions should be carefully reviewed with appropriate cybersecurity team members to guarantee optimal insight and accuracy. Technology infrastructure is complicated, and cyber insurance is only one component in a dizzying array of cyber security issues.
Many cyber liability applications, even some renewal applications, have a “warranty statement” effectively certifying the accuracy of responses. An inaccurate statement can be interpreted as a breach of this warranty. Failure to respond to questions on the application accurately and in good faith can leave an insured vulnerable to a rescission action.
A carrier that believes an insured intentionally or willfully misrepresented important information can request rescission of the insurance policy. A recission action will void a cyber insurance policy as if it never happened.
Thankfully, rescission actions are rare and require court intervention. For rescission to be granted, there typically must be proof of an egregious act of intentional fraud or material misrepresentation on the part of the insured. However, it is important to understand that the act of certifying an inaccurate application can create significant coverage issues.
Working with a knowledgeable, specialist insurance broker can provide guidance in these uncertain times. Cyber liability insurance can be tricky, but careful consideration to the questions on the application can help companies avoid unnecessary drama.
Monica M. Minkel is vice president and executive risk enterprise leader at Holmes Murphy, an independent insurance brokerage.
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