Cyber insurance is an increasingly important safeguard for housing organizations facing growing threats like ransomware, business email compromise, and data breaches.
However, when applying for cyber insurance, it's important to be aware of certain red flags that may raise concerns for insurers. In this article, we’ll walk you through the red flags to watch out for when filling out a cybersecurity insurance application. Before we do that, here’s a brief introduction to cyber insurance and why it’s so critical in today's technology-first world.
Why cyber insurance matters
Even with strong cybersecurity tools in place, no system is invulnerable. Mistakes happen. One employee clicking the wrong link can open the door to malware, data theft, or financial fraud.
"Cybercriminals specialize in social engineering and manipulating people into revealing sensitive information or performing risky actions," said Angel Fear, assistant director with HAI Group's Account Services team. "These attacks often begin with something as simple as an email click."
That’s where cyber insurance comes in.
"In the event of a cyberattack, a cyber insurance policy can do more than cover first- and third-party financial losses stemming from the incident," Fear explained. "Most policies include access to timely services to help investigate and repair vulnerabilities, manage public relations efforts, and provide legally required notifications to individuals impacted by a data breach."
HAI Group no longer offers a master cyber liability policy but can help members access standalone coverage through a network of vetted partners.
"We offer a single cyber insurance application that we can send to multiple cyber carrier partners on your behalf," Fear noted.
While reviewing applications with members, she often encounters recurring issues that can delay or derail coverage. Below are the most common red flags to watch for.
11 Cyber Insurance Application Red Flags
1. Lack of data encryption
Encrypted data is transformed into a secure format that only authorized users can read. Cyber applications often ask whether your data "at rest"—like personal resident data stored on servers—is encrypted. If not, insurers may consider your data vulnerable.
2. No multi-factor authentication (MFA)
MFA requires users to verify their identity through two or more steps. Most insurers won’t consider an application unless MFA is in place across critical systems.
3. Inadequate vendor account verification
Phishing schemes often involve fake invoices from fraudsters posing as vendors. "Without verification, you might not have the right address or bank account information for the vendor," Fear said. Always confirm vendor details before entering them into your accounts payable system.
4. Unverified backup and failover testing
Backing up your data is crucial, but it’s only part of the equation. Insurers want proof that backups and failover systems are regularly tested. "If a backup fails during an attack, organizations may be forced to pay ransoms or suffer major losses," Fear said.
5. No incident response plan
A formal plan for responding to cyber incidents shows you're prepared. If your organization doesn’t have one, consider creating it before applying.
6. Long recovery time objective (RTO)
How quickly can your organization bounce back? Fear recommends aiming to restore critical systems in under three days. Anything longer could jeopardize your application.
7. History of prior cyber incidents
Previous breaches aren’t deal-breakers, but insurers want to see that you took corrective action to prevent a repeat event.
8. Incomplete or inaccurate applications
Errors or missing information can result in delays or denied claims. "Always consult your IT department when completing a cyber application," Fear advised. "Some questions are technical, and a misstatement could impact your coverage."
9. Lack of employee cybersecurity training
Employees are your first line of defense. If you don’t offer regular training, insurers may see your organization as high risk.
10. Use of outdated software
Old or unpatched software creates security gaps. Keeping your systems updated shows insurers that you're taking vulnerabilities seriously.
11. Weak password management
Shared, reused, or simple passwords are an open invitation for cybercriminals. Strong password policies are a must.
Strengthening your cybersecurity strengthens your application
Insurers want to know that your organization takes cybersecurity seriously. By addressing these red flags before you apply, you can increase your chances of approval—and ensure better protection if an incident occurs.
"By demonstrating a strong commitment to cybersecurity and taking proactive steps to prevent cyber incidents, organizations can increase their chances of being approved for cyber insurance and minimize their risk of financial losses and reputational damage," Fear said.
If you're interested in applying for cyber insurance, contact your HAI Group account executive. Be sure to include your executive director and an IT team member in the conversation. Your account executive can walk you through the process and connect you with our network of trusted carriers.
Interested in a cyber insurance policy? Contact your HAI Group account executive and include your organization's executive director and IT team member in the meeting. Your HAI Group account executive can talk through the application process and coverage scenarios and answer any questions you might have.
Interested in learning more about the coverage solutions we offer? Connect with a member of our Account Services team.
This article is for general information only. HAI Group® makes no representation or warranty about the accuracy or applicability of this information for any particular use or circumstance. Your use of this information is at your own discretion and risk. HAI Group® and any author or contributor identified herein assume no responsibility for your use of this information. You should consult with your attorney or subject matter advisor before adopting any risk management strategy or policy.
HAI Group® is a marketing name used to refer to insurers, a producer, and related service providers affiliated through a common mission, management, and governance. Property-casualty insurance and related services are written or provided by Housing Authority Property Insurance, A Mutual Company; Housing Enterprise Insurance Company, Inc.; Housing Specialty Insurance Company, Inc.; Housing Investment Group, Inc.; and Housing Insurance Services (DBA Housing Insurance Agency Services in NY and MI).
