3 Common Cyber Insurance Myths (and Why They’re Costing You Money)

Guest post by Capsule

Cyber insurance has rapidly evolved from being considered a specialist offering to a critical pillar of modern risk management. Yet many businesses still misunderstand what it covers and just as importantly, what it doesn’t do.

Recent high-profile cyber incidents dominating headlines this year have shown that cyber insurance can significantly influence the overall impact on a business: how quickly it recovers, how effectively costs are contained, and how severely operations are disrupted.

Large global organisations often have the infrastructure and resources to absorb these shocks. For small and medium-sized enterprises (SMEs), however, the consequences can be crippling. This is why it’s essential for every organisation to understand what constitutes a robust, end-to-end cyber resilience strategy, both before and after a breach.

Persistent misconceptions about cyber insurance continue to leave businesses dangerously exposed to financial loss, regulatory penalties, and reputational damage.

Myth 1: “Our existing business insurance covers cyber risk.”

This is perhaps the most widespread misunderstanding surrounding cyber risk. Traditional business insurance policies are built to address physical perils such as fire, theft, or property damage, not digital threats.

Most general liability or property policies exclude coverage for data breaches, ransomware attacks, or GDPR penalties. They simply aren’t built to handle the financial, technical, and legal complexities of a cyber incident.

Why your current policy could be leaving you exposed.

The reality is stark: many businesses assume their standard insurance includes cyber protection. According to the Association of British Insurers (ABI), many SMEs mistakenly assume that their existing business policies include cyber protection. Yet around 50% of UK businesses experienced a cyber-attack or breach in the past 12 months and very few had dedicated cover in place (ABI, 2025).

The financial impact can be devastating. IBM’s research shows the average cost of a UK data breach hit £3.58 million in 2024, a 10% increase year-on-year (IBM Cost of a Data Breach Report, 2024).

For SMEs, the picture is equally alarming: UK small businesses collectively lose over£3.4 billion annually due to cyber incidents and inadequate security measures (Computer Weekly, 2024).

So what does cyber insurance provide?

Unlike general business insurance, cyber insurance is purpose-built for the digital world. Comprehensive policies can include:

• Forensic investigations and incident response support
• Data restoration and system recovery
• Business interruption costs
• Legal defence, notification, and public relations expenses
• Regulatory fines and penalties (where legally insurable)

Without a standalone cyber policy, businesses often discover, too late, that their “all-risk” cover excludes the very risks they face most often.

Myth 2: “Our Cyber Insurance will cover everything if we’re hacked.”

While cyber insurance offers vital protection, it is not a magic shield against all losses. Many organisations assume that once they have a policy in place, every cost and consequence of a cyber incident will be covered. The reality is more complex.

Why cyber insurance isn’t all-inclusive

Even the most comprehensive policies have boundaries. Certain losses, such as long-term revenue decline, reputational damage, or future lost contracts, often fall outside standard coverage.

Policies typically focus on specific events like data breaches or ransomware attacks and may impose conditions for payout. For example, failing to maintain minimum security standards, such as multi-factor authentication or timely patching, can invalidate a claim.

The reality of coverage gaps

Businesses frequently overestimate what their policy includes. A recent Marsh survey found that over 40% of UK firms believe their cyber insurance covers all breach-related costs, yet most policies exclude consequential losses and regulatory fines beyond legal limits (Marsh Cyber Risk Report, 2024).

The financial exposure can be significant. IBM reports that indirect costs, such as customer churn and brand erosion, account for nearly 40% of the total impact of a breach, yet these are rarely covered (IBM Cost of a Data Breach Report, 2024).

What to check with your broker/insurer

Comprehensive cyber insurance should be seen as part of a broader risk management strategy, not a silver bullet.

Here’s a quick checklist to review your policy today:

• Coverage for business interruption and contingent business interruption
• Limits on regulatory fines and penalties
• Conditions for forensic and legal support
• Exclusions related to human error or third-party vendors
• Requirements for security controls and compliance

Myth 3: “Our cybersecurity provider keeps us safe, so we don’t need insurance.”

Strong cybersecurity is essential but it’s not a guarantee. Despite widespread investment in advanced tools and services, breaches remain inevitable. Human error, supply-chain compromise and zero-day vulnerabilities continue to drive losses across every industry.

Security and insurance serve different, but complimentary purposes.

Your cybersecurity partner helps reduce the likelihood and impact of an attack before a breach. Cyber insurance steps in after an incident, mitigating the financial, legal, and operational consequences to get your business back on its feet.

Both are critical components of a mature risk management strategy.

The numbers tell the story

Verizon’s 2024 Data Breach Investigations Report found that 74% of breaches involved the human element, including phishing, mis delivery, and credential misuse.

Meanwhile, the UK’s National Cyber Security Centre (NCSC) reports that supply-chain attacks surged by 40% year-on-year, proving that even the best internal controls can be bypassed by third-party exposure.

When combined, cyber insurance and cybersecurity form a layered defence:

• Security controls reduce the probability of a breach.
• Insurance provides financial resilience if one occurs.

At Capsule, we recognise the value of proactive risk management. Businesses that implement strong controls often receive lower premiums, broader coverage terms and therefore tailored protections that is truly reflective of their risk posture.

The Bigger Picture: Rising Threats, Rising Costs

The cyber threat landscape continues to intensify. The UK Government’s Cyber Security Breaches Survey 2025 revealed that half of all UK businesses reported The cyber threat landscape is intensifying. The UK Government’s Cyber Security Breaches Survey 2025 revealed that half of all UK businesses reported a cyberattack or breach in the past 12 months, with the average direct cost to medium-sized firms exceeding £25,000 per incident.

Globally, ransomware remains the most disruptive threat. Sophos’ 2025 State of Ransomware Report noted that 66% of organisations were hit by ransomware in 2024, and the average recovery cost, including downtime and reputational loss, exceeded US$1.8 million.

As threats grow in frequency and sophistication, cyber insurance has become a critical mechanism for business continuity but it should never be treated as an afterthought. Instead, it must be integrated into a broader cyber resilience strategy.

Practical Steps for Businesses

To ensure comprehensive protection, organisations should:

1. Review all existing insurance policies
   • Identify whether cyber-related risks are included or excluded.
   • Confirm whether business interruption and data restoration costs are covered.
2. Evaluate cybersecurity posture
   • Implement strong controls such as multi-factor authentication, endpoint protection, and incident-response planning.
   • Conduct regular employee awareness training to reduce the likelihood of human error.
3. Engage a specialist broker
   • Cyber policies vary widely between insurers. A specialist broker can ensure that cover aligns with business operations, risk profile, and regulatory requirements.
   • Brokers can also help negotiate lower premiums for businesses demonstrating strong security practices.
   • Speak with Capsule today for support on reviewing your policy wording and coverage.

Conclusion

Cyber threats represent one of the most significant operational and financial risks facing UK businesses today. Generic business insurance does not provide the protection required; cyber insurance does but only when structured correctly and supported by proactive cybersecurity measures.

The most resilient organisations recognise that security and insurance are complementary. Together, they provide both protection and preparedness reducing the likelihood of attack and ensuring recovery if one occurs.

As the threat landscape evolves, separating fact from fiction about cyber insurance is no longer optional, it’s essential for business survival.

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.