Why are cyber insurance claims being denied in Australia?

Insurers are increasingly denying claims due to ‘misrepresentation of controls’. This happens when a business claims to have security measures like multi-factor authentication (MFA) or the Essential Eight implemented, but an investigation reveals they were either missing, partially …

Reasons for Cyber Insurance Claim Denials

The landscape for cyber insurance has shifted from “easy coverage” to “strict compliance.” Insurers no longer take a business’s word for it; they require proof of implemented controls.

Common Reasons for Denial

1. Misrepresentation of Security Controls

This is the leading cause of denial. If you checked “Yes” to having Multi-Factor Authentication (MFA) on your insurance application, but an attacker gained access via a legacy account that didn’t have MFA enabled, the insurer may argue you misrepresented your risk profile and void the policy.

2. Failure to Maintain Minimum Standards

Most policies require you to maintain the security posture described in your application. If you stop patching systems or your backup regime fails, you may be in breach of your policy conditions.

3. Essential Eight Gaps

Insurers increasingly require Maturity Level 2 of the Essential Eight framework. If your business hasn’t implemented application control or restricted administrative privileges correctly, you may be uninsured in the event of a breach.

4. Failure to Report Promptly

New laws, such as the Cyber Security Act 2024, mandate reporting ransomware payments within 72 hours. Failing to comply with statutory reporting obligations or the insurer’s own notification deadlines can lead to a denial.

5. Lack of Immutable Backups

If your backups are encrypted along with your primary data because they weren’t “air-gapped” or “immutable,” insurers may view this as a failure of basic risk management.

How to Protect Your Coverage

Audit your MFA: Ensure it is enforced via conditional access and legacy auth is disabled.
Document everything: Maintain logs of patching, backup tests, and staff training.
Legal review: Have your insurance application and policy reviewed by a lawyer to ensure your representations are accurate.

Is your coverage at risk? Read our detailed guide on Why Your Cyber Insurance Claim Could Be Denied in Queensland or Contact Bell & Senior for a compliance review.