Does cyber insurance cover ransomware attacks?

Does cyber insurance cover ransomware attacks?

Cyber insurance has now become a business-critical safeguard, especially as ransomware attacks surge across Indian organizations. The Hindu recently reported that nearly half of Indian companies have experienced at least one ransomware incident in the past year (Source). Business leaders are asking a hard but necessary question, ‘Does cyber insurance actually cover ransomware attacks, or does it fail when you need it most?’

The answer is nuanced. Most modern cyber insurance policies do cover ransomware, but only when certain technical, legal, and operational conditions are met. 

Why ransomware is a growing cyber risk in India

Ransomware has evolved from opportunistic hacking into a highly organized and profitable cybercrime economy. Indian businesses have become particularly attractive targets due to rapid digital adoption, cloud-first infrastructure, massive volumes of sensitive data, and inconsistent levels of cybersecurity maturity across organizations.

According to a Global Ransomware Survey by OpenText, a company specializing in secure information management for AI, 7 in 10 Indian organizations (71%) have reported a surge in AI-driven phishing and deepfake attacks, making India one of the most targeted and AI-exposed markets globally (Source). These attacks are no longer isolated IT incidents, recent surveys confirm that many ransomware incidents result in prolonged operational downtime, regulatory exposure, and significant revenue loss.

Unlike traditional cyber incidents, ransomware strikes multiple layers of the business at once: it disrupts operations, damages brand reputation, and puts immediate pressure on cash flow. For HR leaders and business teams, the risk is even broader, as employee databases, payroll systems, and internal platforms are often prime targets, turning a cyberattack into a full-scale organizational crisis.

Who needs cyber insurance the most?

Startups and scale-ups: These businesses rely heavily on cloud tools and often scale faster than their security maturity. A single ransomware attack can drain cash reserves, disrupt operations, and hurt investor and customer confidence.

SaaS and cloud-based businesses: Because their products run entirely on digital infrastructure, any outage or breach directly impacts customers. Downtime, SLA breaches, and data leaks can quickly lead to revenue loss, churn, and legal issues.

Healthcare and healthtech companies: They store highly sensitive medical data and run mission-critical systems. A ransomware attack can disrupt patient care and trigger serious regulatory and legal consequences.

HR tech and payroll platforms: These platforms manage large volumes of employee personal and salary data. A single breach can impact not just one company, but thousands of employees across multiple organizations.

Fintech, NBFCs, and BFSI firms: They handle financial transactions and regulated data, making them prime targets for cybercriminals. An attack can cause financial losses, regulatory action, lawsuits, and reputational damage.

Enterprises handling sensitive customer or employee data: Any organization storing large volumes of confidential data faces high cyber risk and costly recovery if systems or data are compromised.

In short, if your business:

• Depends on digital systems to function.
• Stores personal, financial, or health data.
• Cannot afford prolonged downtime or reputational damage.

Cyber liability insurance is important to prevent the upcoming risks.

Who needs cyber insurance the most?

• Startups and scale-ups
• SaaS and cloud-based businesses
• Healthcare and healthtech companies
• HR tech and payroll platforms
• Fintech, NBFCs, and BFSI firms
• Enterprises handling sensitive customer or employee data

What is a ransomware attack?

A ransomware attack is a cyber incident where malicious software encrypts an organization’s data or systems, rendering them unusable until a ransom is paid, typically in cryptocurrency. Modern ransomware attacks often involve:

• Data encryption
• Data exfiltration (theft)
• Extortion threats
• Public data leaks

How ransomware attacks work

1. Initial access via phishing emails, compromised credentials, or exposed remote access.
2. Lateral movement across systems and networks.
3. Data encryption and exfiltration.
4. Ransom demand with a strict deadline.
5. Threat of data disclosure or permanent loss.

From a business perspective, the real cost is downtime, client churn, regulatory scrutiny, and loss of trust.

Does cyber insurance cover ransomware attacks?

Yes, most cyber insurance policies do cover ransomware attacks, usually under sections called cyber extortion, incident response, or breach response. This means the policy may pay for things like ransom negotiation, forensic investigation, data recovery, legal support, and business interruption losses.

That said, this coverage is not automatic or unconditional. Whether your cyber insurance policy actually pays depends on a few critical factors:

• Policy wording: Your policy’s exact wording decides whether ransomware is covered, under what limits, and in which situations the insurer will pay.
• Security controls in place: If basic cybersecurity measures (like backups or MFA) were missing or weak, the insurer can reduce or deny the claim.
• Compliance with policy conditions: If you don’t follow the insurer’s incident-handling process, approval rules, or reporting timelines, your claim can be rejected.
• Legality of the ransom payment: If the attacker is on a sanctions list, the ransom is illegal to pay, and the insurer cannot reimburse it, even if ransomware is covered.

When ransomware claims are covered

• The attack is sudden and external.
• Reasonable cybersecurity measures were in place.
• The organization did not ignore known vulnerabilities.
• The ransom payment is legally permitted.

In these cases, a cyber insurance policy may respond to:

• Ransom negotiation and payment
• Forensic investigation
• Data recovery and system restoration
• Business interruption losses
• Legal and crisis management expenses

When insurers may deny a ransomware claim

• Poor security practices (no MFA, weak passwords).
• Unpatched systems despite known vulnerabilities.
• Intentional negligence or ignored warnings.
• Insider involvement.
• Payments to sanctioned entities.
• Pre-existing breaches before policy inception.

What does cyber insurance pay for in a ransomware attack?

What is not covered under a cyber insurance policy?

Poor cybersecurity hygiene: Losses caused by weak security practices like weak passwords, no access controls, or lack of basic protection aren’t covered.

Unpatched or outdated systems: If a breach happens because you didn’t update or patch your systems in time, the insurer can deny the claim.

Insider attacks: Damage caused by employees or internal staff (intentional or malicious) is usually excluded from coverage.

Intentional or reckless negligence: If the incident happened because the company knowingly ignored serious risks, the policy won’t pay.

War or state-sponsored cyberattacks: Attacks linked to nations, cyber warfare, or geopolitical conflicts are typically excluded.

Illegal or sanctioned ransom payments: Any ransom paid in violation of law or sanctions is not covered.

Known incidents before policy purchase: If the breach or vulnerability existed before buying the policy, it won’t be covered.

What is not covered?

• Poor cybersecurity hygiene.
• Unpatched or outdated systems.
• Insider attacks.
• Intentional or reckless negligence.
• War or state-sponsored cyberattacks.
• Illegal or sanctioned ransom payments.
• Known incidents before policy purchase.

Cyber insurance vs cybersecurity tools: What’s the difference?

Important: Firewalls, backups, and employee training reduce the risk of cyberattacks. Cyber insurance absorbs the impact when those defenses are breached. You don’t choose one. You need both.

A real-life ransomware attack India can’t ignore: The AIIMS Delhi incident

The 2023 ransomware attack on AIIMS Delhi is one of the most alarming cyber incidents India has seen in recent years (Source). One of the country’s most critical, government-run healthcare institutions was forced to shut down its servers, disrupt patient services, and operate manually for days after hackers crippled its systems.

Beyond the operational chaos, the attack raised serious concerns about potential patient data exposure and the vulnerability of India’s healthcare infrastructure. In a country where millions depend on government hospitals like AIIMS, this was an IT failure that soon led to a systemic risk.

The AIIMS incident highlights that even the most important institutions are not immune to cyberattacks. And while cybersecurity tools help reduce risk, incidents like this show why organisations also need cyber insurance, to handle investigation costs, system recovery, legal exposure, and business disruption when an attack still gets through.

How much cyber insurance do you need for ransomware?

General benchmarks:

• Startups and SaaS companies: ₹2-10 crore
• Healthcare and HR tech firms: ₹5-20 crore
• Fintech and data-heavy enterprises: ₹10-50 crore

Rule of thumb: Your cyber insurance policy should ideally cover 3–6 months of potential worst-case business disruption.

How to make sure your cyber insurance covers ransomware

Checklist for buyers:

• Explicit ransomware or cyber extortion coverage: Ensure the policy specifically protects against ransomware attacks.
• Adequate ransom sub-limits: Check that the maximum payout for ransom matches your potential exposure.
• Incident response and forensics included: Confirm the policy covers investigation and technical recovery costs.
• Clear stance on negligence exclusions: Understand what employee or company errors might void coverage.
• Business interruption coverage: Make sure losses from downtime are reimbursed.
• Alignment with DPDP Act exposure: Verify protection for potential liabilities under India’s data protection regulations.
• Regular risk assessments: Ensure ongoing evaluation of cyber risks is supported or required.

Why businesses are buying cyber insurance through Pazcare

• Choose ransomware-ready cyber insurance policies.
• Avoid hidden exclusions
• Align insurance with compliance and security posture
• Get end-to-end support, not just a policy document

Conclusion

Ransomware can strike any business, anytime, and prevention alone isn’t enough. Cyber insurance provides a critical safety net, protecting finances, operations, and reputation when attacks succeed. Secure your cyber insurance policy through Pazcare and stay prepared before it’s too late.