What is a cyber warranty?

Cyber insurance is fast becoming a necessity for modern business. In the last 12 months alone, 39% of UK businesses identified a cyberattack. And, as cyberattacks increase in number, the need for small businesses to access reasonably priced cover is only going to grow starker.

However, cyber insurance is not without its problems. As the number of businesses being breached continues to grow, the industry is struggling to keep premiums at a level that’s affordable for smaller businesses. In turn, this is pushing traditional ‘standalone’ cyber insurance (without monitoring or extra protection) out of reach financially for many SMEs. 

But cyber insurance isn’t the only game in town. Some software providers and cybersecurity companies are beginning to offer a complementary option – cyber warranties. Let’s dive into the what, the why and the how.

What is a cyber warranty and how does it work? 

A cyber warranty is a relatively simple concept. Essentially, a cybersecurity company or software developer guarantees that they will pay out if their customers suffer a breach. 

The conditions of the warranty can vary. For example, it could be that the customer has to prove they were using the company’s product when they were breached. Or, alternatively, some providers will expect the customer to adhere to a set of security standards – say the five basic controls that make up Cyber Essentials certification.

Again, the losses the warranty will cover vary from provider to provider but it’s typically a fixed amount, for example, £1m. 

This is useful to SMEs for two key reasons. First, and most obviously, if something goes wrong and your business gets breached, you’ll get some money to cover the damages. Second, it should theoretically provide vendors with a huge incentive to ensure their products are totally watertight.

However, it’s not just SMEs who benefit. A cyber warranty can also give managed service providers a cost-effective method of remediating breaches for clients. Most providers allow any company doing remediation work to bill for it to the warranty, covering the costs.

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Why are cyber warranties needed? 

Cyber warranties come with a number of benefits, both for small businesses and the cybersecurity sector. As we’ve mentioned, they provide any business offering one with a gigantic incentive to produce very secure products – which can only be good for users and the sector as a whole.

Alongside this, they give customers an extra layer of protection they otherwise wouldn’t have, simply for buying software or a cybersecurity tool. What’s more, some cyber warranties ‘fill in the gaps’ in instances that insurers won’t always pay out for. For example, when a breach occurs due to a failure in a vendor’s product.

Is a cyber warranty an alternative to insurance? 

While cyber warranties can function well with cyber insurance as a complementary product, they aren’t an outright alternative. This is down to some of the limitations cyber warranties have.

A cyber warranty will only cover you in the conditions outlined by the vendor. For example, the warranty might not cover ransomware or business email compromise attacks. This isn’t necessarily a big problem, after all, even cyber insurance coverage is limited. However, this could leave you exposed if you don’t have alternative coverage, such as insurance. 

In short, the safest approach is to view cyber warranties as a useful safeguard that works in tandem with traditional cyber insurance.

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