Latest / Cybersecurity Business with Fexingo: Security Companies, Breaches, and Enterprise Defense / How Cyber Insurance Is Reshaping the Ransomware Decision
Transcript
- Lucas: So there's this moment in a ransomware incident where everything stops being about technology and becomes about money. You've got a company with encrypted systems, operations frozen, and the only question that matters is: do we pay? And in 2026, the answer is no longer a pure security decision—it's an insurance decision. Luna: Right, because the insurance policy might dictate what you can even do. I've seen cases where the insurer has a clause that says they won't reimburse the ransom if you pay without their approval. Lucas: Exactly. And that's the shift we're seeing. Cyber insurers are getting much more hands-on. They're not just writing checks anymore; they're actively shaping the response. I spoke with a CISO at a mid-sized logistics firm who had a near-miss earlier this year. The ransomware hit, the attackers wanted eight hundred thousand dollars, and the insurer's first response wasn't 'here's the money'—it was 'let's review your backups before we commit to anything.' Luna: So the insurer essentially forced them to try recovery first. Did it work? Lucas: In that case, yeah. They had immutable backups, restored in about 36 hours, and the insurer covered the cost of the incident response team but not the ransom, because they didn't pay. But that's not always the situation. The policy language is getting strict about when they'll even consider covering a ransom payment. Luna: And that's a huge change from a few years ago where insurers would just fold the ransom into the claim. Now it's like they're trying to push companies toward not paying, partly because they don't want to fund the criminal ecosystem that keeps coming back. Lucas: Exactly. And there's a real tension there, because for the company, the decision to pay or not is about speed to recovery. The average downtime for a ransomware attack is still around three weeks if you have to rebuild from scratch. Paying can get you back in days if the decryption tool actually works. But the insurer is looking at the systemic risk. Luna: Meaning if they pay out on ten ransoms, they're sending a signal to attackers that this business model is profitable. And that's going to drive premiums up for everyone. Lucas: Precisely. So we're seeing more policies with what they call 'ransomware exclusions'—but they're not blanket exclusions. They're conditional. Some policies now say they'll cover the ransom only if the company has implemented multi-factor authentication everywhere, or only if they have tested backups within the last 30 days. It's like they're becoming compliance auditors. Luna: That's got to be tough for companies that don't have that hygiene in place. I mean, if you're a small manufacturing firm with legacy systems, you might not even qualify for coverage anymore. Lucas: And that's a real problem, because the ones who need insurance most are the ones who can't get it. We saw that in the last couple of years with the hardening of the market. Premiums went up by double digits, coverage limits went down, and some firms just got dropped entirely. But what's interesting is the new layer that's emerging: cyber reinsurance. Luna: Right, so the primary insurer takes on your risk, but they lay off some of that risk to a reinsurer. It's like the insurance for the insurance company. How does that affect you as the policyholder? Lucas: It affects you because the reinsurer has requirements too. They might insist that the primary insurer only underwrites policies that meet certain security standards. So even if your insurer is willing to take risk, they have to pass along those stricter requirements to you. That's how we end up with a situation where the insurance market is effectively setting a baseline for cybersecurity across whole industries. Luna: So it's like the insurance industry is becoming a shadow regulator. I mean, that's not necessarily bad, but it's a shift in who's actually setting the rules. Lucas: And there's a fascinating legal angle here. We're seeing more cases of subrogation—that's where the insurer pays out a claim, and then they turn around and sue whoever was responsible for the breach. For ransomware, that could mean suing the software vendor whose vulnerability was exploited, or even the company's own employees if they clicked a phishing link against policy. Luna: That's… aggressive. I mean, suing your own policyholder? That seems like it would kill the relationship. But I get it, they're trying to recover some of their losses. Lucas: It creates a real conflict of interest, though. If the insurer can deny coverage based on a technicality, they might do that rather than pay out, because that's better for their bottom line. That's why we're seeing more companies hire independent counsel to review their policies before an incident, not after. Luna: And they're also building out their own incident response teams in-house, to be less dependent on the insurer's preferred vendors. I've seen job postings for 'incident response manager' that specifically mention coordinating with insurers and lawyers. Lucas: That's a great point. So the role of the CISO is expanding. They're no longer just technical; they have to understand policy language, negotiate with insurers, and even manage relationships with legal counsel. And that's where this gets really interesting from a business perspective: cyber insurance is no longer just a financial product—it's a driver of organizational behavior. Luna: So what do you think is the biggest change we'll see in the next year or two? More exclusions? Higher deductibles? Or maybe a shift toward parametric insurance where you get paid automatically if certain conditions are met? Lucas: I think we'll see a move toward parametric policies for cyber, actually. You know, instead of reimbursing losses after the fact, you get a predefined payout based on a trigger, like a month of downtime. That could make the whole process faster and less adversarial. But the challenge is defining the trigger in a way that's not easily manipulated. Luna: So less negotiation, more automation. That could be a game changer for companies that are tired of fighting over claims. Lucas: Absolutely. And on that note, we should probably mention that this kind of analysis is exactly why we put so much work into this show. If you're finding these conversations useful for what you're building or running, and you want to keep it ad-free, you can support us at buy me a coffee dot com slash fexingo. It's a small way to keep the lights on here. Luna: Yeah, it's the kind of thing that helps us keep diving into these niches. Even a couple of dollars helps. Lucas: Now back to the ransomware decision. Another thing we're seeing is that some companies are starting to factor the insurance premium into their decision to pay. If the premium is going to go up by forty percent next year anyway because you had a claim, sometimes it's cheaper to just pay the ransom out of pocket and not file a claim at all. Luna: Whoa, that's a whole other layer of math. So you're saying they're self-insuring for the small stuff and saving the policy for the catastrophic loss? Lucas: Exactly. And that's a rational decision if the ransom is below the deductible and the claim would just bump your rates. But it also means that the insurance market is becoming less useful as a risk transfer mechanism for mid-sized attacks, which is a bit ironic. Luna: So what's the takeaway for a CFO listening to this? How should they think about cyber insurance in 2026? Lucas: The takeaway is that cyber insurance is not just a line item on your risk register. It's a strategic tool that can shape your incident response, your vendor contracts, and even your hiring decisions. You need to treat it as an active part of your security posture, not a safety net you only think about when something goes wrong. Luna: And that means getting your CISO and your CFO in the same room with your insurance broker, ideally before you buy the policy, and definitely before you have an incident. Lucas: Couldn't agree more. The companies that are doing this well are the ones that are having those conversations now. They're asking the hard questions: 'What are the conditions for a payout? Who decides whether we pay the ransom? What's our responsibility if we don't?' Those are the questions that separate the prepared from the vulnerable. Luna: And I guess the war story for the day is that one logistics firm you mentioned—they were prepared, and it paid off. They had the backups, they had the plan, and the insurer's involvement actually helped them, not hurt them. Lucas: Right. And that's the kind of outcome we should all be aiming for. The goal isn't to avoid insurance—it's to use it as leverage to be a stronger, more resilient organization. And that's a mindset shift that benefits everyone.