Cyber insurance is supposed to be the financial safety net organizations rely on when ransomware, business email compromise, or a data breach strikes. But in practice, a growing number of companies are learning the hard way that filing a claim doesn’t guarantee a payout.
Across 2024–2025, denial rates have climbed significantly, with multiple industry sources reporting that between 25% and more than 40% of cyber insurance claims are rejected due to gaps in security controls, misalignment with policy language, or late reporting.
Understanding why claims are denied isn’t just helpful—it’s essential. Below are the most common causes, supported by current industry research, and what organizations can do to avoid becoming the next denial statistic.
1. Failure to Maintain Required Security Controls
This is the leading cause of cyber insurance claim denials.
Insurers increasingly require organizations to maintain specific controls—often explicitly documented in the policy. If those controls were not implemented or functioning at the time of the incident, the insurer may reject the claim outright.
Industry data shows:
- Failure to maintain MFA is responsible for 37% of denied claims.
- Missing MFA, weak patching, untested backups, or outdated endpoint protection frequently trigger disqualification.
- Insurers expect logs, MFA, EDR, IR plans, and patching to be active and documented—not just claimed.
Typical examples include:
- MFA not enabled for email, VPN, admin accounts
- Servers unpatched for months and exploited
- Backups in place but never tested
- Endpoint tools installed but not monitored
If these baseline protections weren’t in place, insurers argue the organization failed to maintain “reasonable security,” giving them grounds to deny coverage.
2. Misrepresentation or Inaccurate Information on the Application
Insurers carefully compare your submitted application against the real conditions at the time of the attack.
Claims are frequently denied when:
- The application states MFA is deployed everywhere—but legacy accounts were excluded
- You claim to have centralized logging—but logs are missing during investigation
- You report regular security awareness training—but records don’t exist
Misrepresentation—even unintentional—can void a policy.
Multiple sources confirm that inaccurate disclosures are a major denial trigger.
3. Late Reporting or Failure to Follow Notification Requirements
Reporting delays are another leading cause of denial.
Most cyber insurance policies require that an incident be reported within 24 to 72 hours of discovery.
However, many organizations wait:
- To assess damage
- To clean up systems
- To gather internal approval
- To involve legal counsel
Unfortunately, waiting can automatically void coverage.
Current research shows 17% of claims are denied due to late notification alone.
Insurers consider timely reporting essential because:
- Their IR teams must contain the attack early
- Legal notifications have strict timelines
- Waiting exacerbates financial loss
Missing the reporting window is one of the most preventable—but common—mistakes.
4. Policy Exclusions and Coverage Misalignment
A large share of denials stem from organizations believing something was covered when it wasn’t.
Common exclusion‑based denial scenarios include:
- Vendor or third‑party breaches not covered without explicit endorsements (14% of denials).
- State‑sponsored or “war‑like” attacks, which many policies refuse to cover.
- Prior known vulnerabilities the company failed to disclose.
- Phishing or funds transfer fraud excluded unless purchased via add‑ons.
In many cases, organizations simply never reviewed the exclusions in detail—discovering their true limitations only after attempting to file a claim.
5. Lack of Documentation and Evidence
Even if controls were in place, insurers may deny claims if you cannot prove it.
Claims are often denied when organizations cannot produce:
- System logs
- Incident response records
- Training attendance sheets
- Patch management evidence
- Backup validation reports
- Vendor risk assessments
Some carriers report that 44% of claim denials involve lack of adequate evidence.
Insurers must verify that the organization met its contractual obligations. Without documentation, they assume non‑compliance.
6. Outdated or Unsupported Systems
Legacy systems create enormous risk.
When a breach originates from outdated technology missing vendor support or patches, insurers often deny claims on the basis of negligence.
Industry reports show 22% of denials are tied to outdated systems exploited by known vulnerabilities.
Insurers argue that continuing to operate unsupported systems violates reasonable‑security expectations.
7. Undisclosed Vendors or Unreported Third‑Party Services
If you rely on a vendor that wasn’t listed on the policy application, the insurer may deny your claim—especially if the attack originated through that vendor.
Common examples:
- A cloud payroll service is breached, but wasn’t disclosed
- A marketing firm with backend access is compromised
- A hosting provider suffers an attack that impacts your systems
Undisclosed vendors are listed as one of the top reasons claims are rejected.
8. Missing or Unvalidated Incident Response Plans
Many insurers require:
- A formal IR plan
- Regular IR tabletop exercises
- Documented playbooks
If your organization lacks these—or cannot produce evidence of testing—insurers may deny you for insufficient preparedness.
Attack response practices must match what your policy requires.
Final Thoughts
Cyber insurance denials rarely occur because the insurer disputes that a breach happened.
They occur because the organization failed to meet the technical, procedural, or disclosure obligations required by the policy.
Across the industry, the most frequent denial triggers include:
- Missing MFA or outdated systems
- Late reporting
- Misaligned coverage
- Undocumented controls
- Policy exclusions
- Missing evidence
- Vendor-related gaps
By understanding these pitfalls—and building the right controls, documentation habits, and governance—organizations can dramatically improve the likelihood that their cyber insurance claim will be approved when it matters most.
