If there’s one thing we’ve learned from years of watching cyber incidents unfold across industries, it’s this: most businesses don’t realize how expensive a “small” cyber event can become until they’re living through it.
One phishing email has the potential to compromise a mailbox. Such a breached mailbox can lead to fraudulent payments, stolen client information, downtime, and a series of embarrassing phone calls to lawyers, IT forensics, regulators, customers, and even the media.
Cyber insurance is designed for that reality. But not all cyber coverage is built the same. The most important distinction we explain to clients is the difference between first-party and third-party protections. Think of it this way:
- First-party cyber coverage helps pay for what happens to you.
- Third-party cyber coverage helps pay for what happens because of you (in the eyes of customers, partners, and regulators).
You typically need both for a well-rounded safety net.
First-Party Cyber Insurance: Coverage for Your Direct Losses
First-party cyber coverage is about protecting your business’s standing after an incident, both financially and operationally.
Here are the first-party protections we consider “core”:
1) Incident response and forensic investigation
Whenever something goes wrong, this is generally the first question you will ask yourself: What happened and how bad was it? Here is where forensic professionals come in, tracking the entry points, determining what was accessed, and assisting in closing down the threat. Cyber insurance often covers these specialist costs.
2) Data restoration and system recovery
It can be labour-intensive and costly to recover, whether it be ransomware encryption, accidental deletion during a breach response or corrupt servers. Rebuilding systems, restoring backups, and recovering data can be financed with the aid of first-party coverage.
3) Business interruption and extra expense
Downtime is a profit killer. Without the ability to bill, operate, transact or service a customer, the revenue will decrease, yet the payroll and the rent will continue. Business interruption coverage is used in place of lost income and can also be used to cover additional expenses to keep you going (temporary systems, outsourced support, expedited hardware).
4) Cyber extortion (including ransomware-related costs)
If you’re dealing with extortion threats, the real cost isn’t just the demand; it’s negotiation support, incident response, legal guidance, and restoring operations. Policies commonly respond to these pieces (subject to policy terms and legal considerations).
5) Breach notification and customer support
In Canada, breach response can include notifying affected individuals, setting up call centres, offering credit monitoring, and managing communications. First-party coverage is often the bucket that helps fund those immediate, practical steps.
When we review cyber policies, we’re looking for more than a checklist. We want to see how quickly response services activate, whether vendors are included, and whether you have access to a coordinated panel of experts when the pressure is on.
Third-Party Cyber Insurance: Coverage for Liability and Claims
Third-party coverage is where cyber insurance starts to look like liability insurance, because it is. It addresses claims where a cyber incident harmed someone else or where you failed to protect information appropriately.
Key third-party protections include:
1) Privacy liability (lawsuits and claims)
If personal information is exposed: customer records, employee data, tenant files, payment details, affected parties may claim damages. Third-party cyber coverage helps fund defence costs and settlements (where applicable).
2) Regulatory investigations and defence
Canadian organizations can be subjected to privacy laws as well as reporting requirements. Depending on jurisdiction and wording, third-party coverage usually assists in defending expenses and some regulatory-related expenses.
3) Network security liability
If your systems are used to spread malware or your compromised vendor connection harms a client, third-party coverage can help respond to claims alleging your network security failure caused downstream harm.
4) Media and reputational liability (content-related)
Some cyber policies include protections tied to online content: claims involving defamation, copyright, or digital publishing exposures. This is especially relevant for businesses with a strong web presence or active marketing footprint.
5) Contractual liability pressures
Many organizations sign contracts that require specific cyber safeguards and insurance limits. If a breach triggers contract disputes or client demands, third-party coverage may help with defence costs tied to those allegations, again, subject to policy wording.
Why “Both Sides” Matter
We often see businesses buy cyber insurance, thinking it’s mainly about ransomware. In reality, cyber losses frequently come in pairs:
- The cost to fix your operations (first-party)
- The cost to respond to other people’s losses and legal actions (third-party)
If you only carry one side, you may still be exposed to the other, sometimes in the most expensive way.
FAQs
1) Is cyber insurance only for big companies?
No. Smaller businesses are common targets because attackers assume security controls are lighter and response budgets are tighter. Cyber insurance can be especially valuable for SMBs because it brings a response team and funding structure when you need it most.
2) Does my commercial general liability (CGL) policy cover cyber events?
Usually not in a meaningful way. Many CGL policies have exclusions or limited extensions related to electronic data. Cyber insurance is built specifically for modern breach response, privacy exposures, and digital business interruption.
3) Will cyber insurance cover phishing-related fraud (like invoice redirection)?
Sometimes. This often falls under social engineering or fraud coverage, which may be optional or sub-limited. We always recommend reviewing this carefully because it’s one of the most common real-world losses.
4) How much cyber coverage should a business carry?
It depends on your data sensitivity, revenue, reliance on systems, contractual requirements, and exposure to third-party claims. Many organizations start in the $1M–$5M range, but the right number is driven by risk, not guesswork.
5) What can I do to qualify for better coverage and pricing?
Insurers typically look for controls like multi-factor authentication (MFA), secure backups, employee training, patching practices, and an incident response plan. Strong cyber hygiene can improve both insurability and premiums.
Where an Advisor Makes the Difference
Cyber insurance is not simply an insurance policy, but a response system. The most effective programs are those that have both first-party and third-party protections (to keep your business on track and meet legal and regulatory demands). It is in the details: wording, sub-limits, exclusions, response services and whether your coverage fits your actual operations.
Edward Fayer can assist you in evaluating your cyber exposures and developing your coverage that is reasonable and fits your industry, size and budget.
