Cyber Insurance for SMEs: Reducing Premiums with Security

Guest post by Capsule

When it comes to cyber insurance for SMEs, many small and medium-sized enterprises believe that cyber insurance feels like an optional extra, not a necessity, something to worry about later.

This risk-taking attitude is often driven by various common misconceptions:

1. “We’re too small to attract the attention of cybercriminals.”
2. “There’s no value in our data.”
3. “We’re safe from ransomware because we take backups.”

The opposite is often true. Smaller businesses are frequently seen as easier targets due to limited budgets, lean security teams, and less mature cyber defences. And while the volume of data may be smaller, the impact of a breach can be disproportionately high, both financially and reputationally.

In fact, when paired with strong cyber security practices, SMEs can sometimes access better insurance coverage that protects their business without breaking the bank.

Faced with tight budgets, SMEs often choose to risk it, assuming a breach won’t happen to them. But in today’s threat landscape, cybersecurity is most expensive when it’s neglected.

The True Cost of Data Breaches for SMEs

According to the Cost of a Data Breach Report 2025 published by IBM / Ponemon Institute, the global average cost of a data breach in 2025 is USD 4.44 million.*

When managed proactively, cybersecurity can be less costly; however, neglecting it can lead to significantly higher expenses. A single cyber-attack can trigger a cascade of financial impacts, from forensic investigations and legal defence to business interruption and reputational damage. Many of these costs are not immediately obvious, yet they can quickly escalate and strain resources. The table below outlines both the often overlooked cost implications of cyber incidents and clarifies who is responsible for covering them (you or your insurer) if you’re insured.

Cyber insurance can be a cost-effective safeguard, but the financial and operational burden of recovering from a cyber-attack can be devastating for SMEs, often far exceeding the cost of proactive protection.

How Cybersecurity Reduces Cyber Insurance Premiums

At Capsule, a forward-thinking insurance broker, we believe that cyber insurance and cyber security should not be siloed but should instead be part of the same conversation where cyber insurance is reflective of how well a business protects itself. That’s why we work closely with insurers to understand an organisation’s actual cyber security posture and reward them where investments are made to strengthen their cyber security posture with better insurance premiums. What matters is the strength of your defences; what systems you have in place, whether you conduct regular employee training, and how proactively you manage risk.

SMEs that invest in robust measures like MDR, encryption, multi-factor authentication, and ongoing awareness training are seen as lower risk and that translates into better premiums.

The Difference Between Box-Ticking and Risk Reduction

It’s not uncommon to find many businesses treating security requirements as a box ticking exercise, just to meet the criteria however it’s important to take a more thoughtful approach. The reason being, insurers value risk-reduction strategies that go beyond simply meeting compliance standards. A risk-reduction approach means you have a cybersecurity strategy in place that is tailored to your actual risk environment and drives measurable improvements in your security posture, rather than just ticking boxes.

For example, Company X, a mid-sized manufacturing firm in the automotive supply chain, recognises that its operations are increasingly reliant on digital systems and third-party vendors. Aware of the growing threat of supply chain attacks, where cybercriminals target less secure partners to infiltrate larger networks, Company X implements a comprehensive cybersecurity strategy. This includes third-party risk assessments, endpoint detection and response (EDR), multi-factor authentication (MFA), and regular phishing simulations for staff. These proactive measures not only reduce their exposure to real threats but also position them as a lower-risk client in the eyes of insurers, increasing the likelihood of securing a competitive cyber insurance policy.

Long-Term Benefits of Proactive Cybersecurity

By working with an insurer who values cybersecurity investments, SMEs can see long-term cost benefits, both through reduced premiums and by avoiding the potentially devastating financial consequences of a cyberattack. Additionally, the relationship with a progressive insurer can foster a more secure business environment, driving growth and stability for years to come.

In conclusion, cyber insurance for SMEs doesn’t have to break the bank. By adopting a proactive cybersecurity strategy, SMEs can significantly reduce their premiums while improving their overall risk management posture. Partnering with a broker, like Capsule, who understands the value of cybersecurity investments, can help SMEs secure economical coverage without sacrificing protection. Start by implementing basic security hygiene and demonstrating your security posture, and you’ll not only reduce your cyber insurance premiums but also build a stronger, more resilient business for the future.

Talk to Capsule today to see how your security investments can translate into premium savings.

*Cost of a Data Breach Report 2025

Disclaimer: This content has been produced for general information purposes and should not be taken as formal advice. You should always seek specific professional advice before acting on any of the information given.

Razorthorn is acting as an introducer to Capsule Insurance Services Ltd and does not provide insurance advice or services. All regulated activity is undertaken by Capsule Insurance Services Limited t/a Capsule, an Appointed Representative of James Hallam Limited who are authorised and regulated by the Financial Conduct Authority (FCA), under Firm Reference Number (FRN) 134435. Capsule’s FRN is 948838.