Why Cyber Insurance Claims Are Being Rejected

Cyber insurance is often seen as a safety net.
However, many UK businesses are discovering that it does not always pay out.

In recent years, insurers have rejected a growing number of cyber insurance claims.
This has left directors exposed to serious financial and legal risk.

So why is this happening?
And more importantly, how can your business avoid it?

Cyber Insurance Is Not a Guaranteed Payout

Many business owners assume cyber insurance works like car or home insurance.
Unfortunately, cyber insurance is very different.

Insurers expect you to meet strict security requirements.
If you fail to meet them, your claim may be rejected.

In most cases, the policy wording is very clear.
However, it is often misunderstood or ignored.

The Most Common Reasons Cyber Insurance Claims Are Rejected

1. Security Controls Were Not in Place

This is the most common reason for rejection.

Insurers expect basic cyber security controls to be implemented.
These often include:

Multi-Factor Authentication (MFA)
Regular patching and updates
Secure backups
Antivirus and endpoint protection
Firewall configuration

If these controls are missing, insurers may refuse to pay.

Even worse, some businesses state they have these controls when they do not.
That can invalidate the policy entirely.

2. Policies Were Not Followed

Having policies is not enough.
They must also be followed.

For example:

Password policies ignored by staff
Shared user accounts
Insecure remote access
Poor access control management

If an incident occurs and logs show policies were not enforced, the claim may fail.

3. Inaccurate Information During the Application

Cyber insurance applications are detailed for a reason.

If inaccurate or outdated information is provided, insurers may class this as misrepresentation.

This includes:

Claiming MFA is enabled when it is not
Saying systems are fully patched when they are not
Failing to disclose previous incidents

Even honest mistakes can lead to a rejected claim.

4. Lack of Evidence After an Incident

After a cyber incident, insurers expect clear evidence.

This includes:

Incident logs
Backup verification
Proof of security controls
Timelines of response actions

Without proper logging and documentation, insurers may refuse the claim.

5. Failure to Meet Policy Conditions

Many cyber insurance policies include conditions that must be met before an incident occurs.

These may include:

Annual security assessments
Regular penetration testing
Employee security awareness training

If these conditions are not met, cover may be withdrawn.

Why This Is a Serious Risk for Directors

Rejected cyber insurance claims do not just affect IT teams.

They affect directors personally.

Under UK law, directors have a duty to manage risk.
Cyber risk is now considered a business risk, not just a technical one.

If reasonable security measures were not in place, directors may face:

Financial losses
Regulatory scrutiny
Reputational damage
Legal action

How UK SMEs Can Reduce the Risk of Rejected Claims

The good news is that this risk is manageable.

Here are practical steps that help protect both your business and your insurance cover.

Align Security Controls With Insurance Requirements

Start by understanding what your insurer expects.

Then ensure your controls actually match those requirements.
Do not rely on assumptions.

Implement Recognised Standards

Frameworks like Cyber Essentials and ISO 27001 help demonstrate good practice.

Many insurers now expect these controls as a minimum baseline.

They also provide evidence if a claim is challenged.

Keep Documentation Up to Date

Documentation matters.

This includes:

Policies and procedures
Risk assessments
Incident response plans
Security training records

If it is not written down, insurers may assume it does not exist.

Test Your Controls Regularly

Security controls should be tested, not just installed.

Regular reviews help identify gaps before an insurer does.

This also shows due diligence if a claim is reviewed.

Final Thoughts

Cyber insurance can be valuable.
However, it is not a substitute for good cyber security.

Most rejected claims fail because basic expectations were not met.

By taking a proactive approach, UK SMEs can reduce risk, protect directors, and ensure insurance works when it is needed most.

If you are unsure whether your current controls meet insurer expectations, it is better to find out now than after an incident.

About Fortitude Cyber

Fortitude Cyber helps UK SMEs strengthen their cyber security posture and reduce real-world risk.

We support organisations with:

Cyber Essentials & Cyber Essentials Plus
Governance, Risk & Compliance (GRC)
Practical security improvements aligned with insurer expectations