SaaS solutions provide businesses with flexibility, scalability, and ease of use, but they are not without their risks—downtime being one of the most critical. When a SaaS platform experiences downtime, it can disrupt business operations, resulting in lost productivity, revenue loss, and even harm to a company’s reputation. Many organizations look to cyber insurance to mitigate the financial impact of these disruptions, only to find that coverage for SaaS downtime is often limited or subject to exceptions. This blog delves into the complexities of depending on cyber insurance for SaaS downtime and highlights why businesses should also invest in on-premises systems. Doing so not only enables faster recovery and minimizes downtime but also enhances the likelihood of better insurance coverage and reduces financial losses from unexpected outages.
Why SaaS Downtime is a Cyber insurance Coverage Nightmare
Cyber insurance is designed to protect businesses from financial losses resulting from cyber incidents such as data breaches, ransomware attacks, and other malicious activities. These policies cover costs related to data recovery, legal fees, regulatory fines, customer notifications, and business interruption losses caused by cyberattacks. However, when it comes to SaaS downtime, the coverage becomes more complex and less straightforward. SaaS downtime stem from a variety of issues—some covered by insurance, others not—leading to several challenges and limitations for businesses relying solely on insurance to mitigate these risks.
Complexities of SaaS Downtime Insurance
While cyber insurance might cover certain types of cyber incidents affecting SaaS platforms, there are significant challenges and limitations when it comes to SaaS downtime coverage:
- Attribution Issues: One of the primary complexities of covering SaaS downtime under a cyber insurance policy is determining the root cause of the downtime. Insurance coverage often hinges on whether the downtime was caused by a covered event, such as a cyberattack, or by other factors like technical failures, maintenance issues, or misconfigurations, which are typically not covered. For instance, if a SaaS platform experiences downtime due to a Distributed Denial-of-Service (DDoS) attack, the insurer might cover business interruption losses. However, if the downtime is due to a routine update gone wrong, it is unlikely to be covered. This need for precise attribution can lead to delays in claims processing and potential disputes between the insured and the insurer.
- Policy Exclusions: Many cyber insurance policies include specific exclusions for downtime caused by third-party service providers, which can limit or entirely negate coverage for SaaS-related incidents. Given that SaaS platforms are third-party providers, insurers may exclude any losses related to their performance or availability. Even if a policy does not explicitly exclude SaaS downtime, it may require that the insured prove the downtime resulted from a cyber event rather than from the provider’s own failures or negligence. Additionally, insurers may impose sub-limits on the amount of coverage available for third-party service disruptions, making it challenging for businesses to recover the full extent of their losses.
- SLAs vs. Insurance: Service-Level Agreements (SLAs) play a crucial role in how SaaS downtime is addressed. SLAs are contracts between the SaaS provider and the customer that outline the expected service availability and the remedies available if these expectations are not met. However, SLAs typically offer limited compensation, such as service credits, which may not cover the broader financial losses a business incurs during downtime. When seeking insurance coverage, insurers may defer responsibility to the SaaS provider’s SLA, arguing that the SLA is the primary recourse for downtime issues. This creates a complex interplay between SLAs and insurance policies, often leaving businesses in a position where they receive only partial compensation for downtime losses, if any.
Car Dealerships and Cyber Insurance: Lessons from the CDK Global Breach
CDK Global, a leading SaaS provider for automotive dealerships, recently fell victim to a significant cyberattack that disrupted its services. As a result, more than 15,000 dealerships that relied on CDK’s software for critical operations, such as inventory management, sales processing, and customer service, faced considerable downtime. The financial impact was immediate, with lost sales, delayed transactions, and reduced customer satisfaction, making it a clear example of the operational risks associated with SaaS dependency.
For dealerships affected by this outage, filing insurance claims presented several hurdles:
- Claim Reporting and Documentation: Dealerships encountered challenges in documenting losses caused by the CDK outage. Many cyber insurance policies require detailed documentation of business interruption costs, which is often complex to quantify, especially in a widespread incident affecting multiple operations. Moreover, insurers typically have strict claim reporting requirements that must be met promptly. Failure to provide timely or adequately detailed documentation can result in denied or reduced claims, leaving affected businesses to bear the brunt of the financial losses.
- Dependent Business Interruption Coverage: Many dealerships were not direct targets of the cyberattack but suffered significant operational losses due to their dependence on CDK’s services. Filing claims under “contingent business interruption” coverage—insurance that protects against losses from third-party disruptions—proved challenging. Insurers often apply sub-limits or exclusions to such indirect losses, further complicating the claims process. In this case, several dealerships likely faced partial or no coverage, as their insurance policies did not fully account for the complexities of third-party SaaS dependencies.
- Regulatory Risks: Beyond the immediate financial impact, the CDK attack raised concerns about regulatory compliance, particularly regarding the potential compromise of sensitive customer data. Affected dealerships could face legal scrutiny, fines, and other penalties. Unfortunately, cyber insurance policies may not fully cover these regulatory risks, leaving businesses exposed to additional liabilities.
- Changes in Cyber Insurance Policies: The CDK cyberattack highlights an evolving trend in the cyber insurance market. Insurers are tightening policy terms, particularly around systemic risks that impact multiple organizations, like SaaS platform outages. New exclusions for catastrophic losses affecting many clients at once could mean dealerships impacted by similar future incidents will find it even harder to recover losses from insurance. The CDK incident exemplifies the growing difficulty of navigating insurance coverage in a rapidly changing risk landscape.
Why Relying Solely on SaaS Hinders Cyber Insurance Coverage
Insurance policies designed to protect businesses against cyber risks often come with complex terms, exclusions, and limitations that can leave companies exposed to substantial financial losses when a SaaS provider experiences downtime or a cyber incident. Here’s why sole reliance on SaaS is risky from a cyber insurance perspective:
Limited Control, Increased Risk: The SaaS Cyber Insurance Challenge
When businesses depend on SaaS providers, they effectively relinquish control over critical aspects of their IT environment, including infrastructure, security measures, and incident response protocols. This lack of control creates gaps in cyber insurance coverage:
- Third-Party Risk Management: Cyber insurance policies require businesses to have robust risk management practices, including controls over the assets processed and managed by third-party vendors. However, with SaaS, the provider manages the infrastructure and security, limiting the customer’s ability to implement or verify these controls. This complicates the claims process, as insurers attribute downtime or data breaches to inadequate third-party risk management, leading to denied or reduced payouts.
- Compliance with Insurance Requirements: Cyber insurance policies have specific requirements related to data security, backups, and disaster recovery plans. Relying solely on a SaaS provider means businesses must trust that the provider meets these requirements. If a SaaS provider fails to uphold its security commitments, the insured business could be held accountable for non-compliance, resulting in claim denials or reduced coverage.
- Incident Response and Recovery: In the event of a cyber incident, the ability to quickly respond and recover is crucial. With SaaS, businesses are dependent on the provider’s response times and recovery strategies, which may not align with the insurer’s expectations or the insured’s needs. This misalignment impacts the ability to recover losses, as insurers require evidence of timely and adequate incident response that the business cannot directly control.
The SaaS Dependency Trap: Increased Risks
Relying on a single SaaS provider for critical business operations creates a dependency that can amplify risks, especially when dealing with insurance claims:
- Single Point of Failure: A business that relies on a single SaaS provider faces a significant single point of failure. If that provider experiences a cyberattack, data breach, or prolonged outage, the business could face extensive operational disruptions. While cyber insurance offers some protection, insurers often impose sub-limits or exclusions for losses tied to third-party providers. This means that claims related to SaaS provider outages may only be partially covered, leaving businesses to absorb much of the financial impact.
- Limited Insurance Coverage for Indirect Losses: Many cyber insurance policies differentiate between direct losses (caused by incidents directly impacting the insured’s systems) and indirect losses (caused by third-party failures). Contingent Business Interruption (CBI) coverage, which addresses losses resulting from third-party incidents, is often limited and comes with exclusions that can make claiming for SaaS downtime particularly challenging. As seen in the CDK Global cyberattack, businesses that were not directly targeted but still suffered significant losses found it difficult to secure full coverage due to such limitations.
- Policy Exclusions and Evolving Insurance Terms: The cyber insurance market is continually evolving, with insurers tightening terms around third-party and systemic risks. Policies increasingly exclude or severely limit coverage for widespread disruptions affecting multiple organizations simultaneously. Businesses heavily dependent on SaaS providers could find their insurance policies offering inadequate protection for such scenarios, especially as insurers respond to increasing claims and risk landscapes by further restricting coverage.
Why On-Premises Systems Matter for Insurance Coverage
On-premises systems provide distinct benefits that can significantly enhance a business’s cyber insurance profile by improving claims success rates, reducing premiums, and ensuring more comprehensive coverage. Here’s why incorporating on-premises systems is crucial from a cyber insurance perspective:
Faster Recovery: The On-Premises Advantage in Cyber Insurance
On-premises systems provide a critical advantage in cyber insurance scenarios by offering faster recovery options, which are often a requirement for policy coverage and favorable terms:
- Compliance with Insurer Requirements for Recovery Time: Cyber insurance policies frequently stipulate specific recovery time objectives (RTOs) and recovery point objectives (RPOs) to qualify for full coverage. On-premises systems enable businesses to achieve these objectives more reliably by allowing immediate access to backup data and local systems. Unlike SaaS solutions, where recovery may be delayed due to the provider’s processes or shared infrastructure, on-premises systems ensure rapid recovery times that align with insurer expectations, minimizing the risk of claim disputes or reductions.
- Proactive Incident Response Plans: Insurance providers look favorably on businesses with well-defined, rapid response plans that include on-premises backup and disaster recovery strategies. This capability not only demonstrates a proactive approach to mitigating cyber risks but also reassures insurers that the business can limit potential losses and downtime. As a result, insurers may offer more favorable policy terms or reduced premiums to companies with robust on-premises recovery setups.
- Mitigation of Loss and Business Interruption Costs: On-premises systems enable faster containment and recovery from incidents, reducing the overall duration of business interruption and related costs. This directly impacts the extent of insurance claims, making it easier for businesses to quantify losses accurately and present strong claims documentation. Faster recovery reduces the insured period of interruption, which is a key metric insurers use when assessing payouts.
Greater Control, Better Insurance: The On-Premises Advantage
Having on-premises systems provides enhanced control over security measures, compliance, and incident management, which directly impacts cyber insurance coverage:
- Demonstrable Risk Management Practices: Cyber insurers assess a business’s risk management practices when underwriting policies. On-premises systems allow businesses to demonstrate rigorous control over data protection, access management, and security configurations. This direct oversight can significantly reduce perceived risk in the eyes of insurers, potentially leading to broader coverage and lower deductibles or premiums.
- Alignment with Policy Terms and Conditions: Many cyber insurance policies contain specific conditions that require businesses to maintain particular levels of data security and control. On-premises environments allow businesses to align their security measures directly with these conditions, reducing the risk of non-compliance that could invalidate claims. Unlike SaaS environments, where businesses have limited control and visibility over the provider’s security practices, on-premises systems ensure that businesses can adhere strictly to their policy requirements.
- Effective Incident Documentation and Forensics: Insurers often require detailed documentation of cyber incidents, including logs, access records, and security measures taken before and after an event. On-premises systems provide full visibility and control over this data, enabling businesses to compile thorough and precise incident reports. This capability can be crucial for claim approval, as insurers demand comprehensive evidence to validate the cause and extent of damage.
The Impact of On-Premises Systems on Cyber Insurance Risk Assessments
On-premises systems contribute to creating a more resilient IT environment, which is highly regarded in cyber insurance contexts and can influence coverage terms and risk assessments:
- Avoid Single Points of Failure: Insurers recognize the risk associated with single points of failure, particularly in SaaS environments where an outage can affect multiple clients simultaneously. On-premises systems help diversify risk by providing an independent layer of redundancy. This strategy can lower the perceived risk for insurers and may lead to more inclusive policy terms that cover a broader range of incidents and losses.
- Support Hybrid Insurance Models: On-premises systems can be part of a hybrid IT strategy that combines cloud and local infrastructure. Insurers are more likely to offer flexible policies to businesses that employ such models, as they demonstrate a commitment to maintaining operational continuity even if a third-party service provider fails. This multi-layered approach reassures insurers that the business is prepared for various contingencies, leading to more comprehensive coverage.
- Reduced Insurer Payouts Due to Effective Risk Mitigation: With on-premises systems in place, businesses can demonstrate to insurers that they have effectively mitigated risks that would otherwise lead to substantial payouts. By showcasing a resilient setup that minimizes the likelihood of extended downtime and extensive data loss, businesses can negotiate better policy terms and reduce the likelihood of encountering restrictive exclusions or sub-limits related to third-party service dependencies.
Balancing SaaS and On-Premises for Reduced Risks and Optimal Cyber Insurance
To mitigate the risks associated with SaaS downtime and maximize the effectiveness of cyber insurance coverage, businesses must adopt a balanced approach that combines SaaS with on-premises systems, comprehensive disaster recovery planning, and regular policy reviews. This approach not only enhances overall resilience but also aligns with the expectations of cyber insurance providers, leading to more favorable terms and coverage.
Hybrid Solutions: Combining SaaS with On-Premises Systems for Better Risk Management
A hybrid IT strategy that integrates both SaaS solutions and on-premises systems offers a more robust and flexible approach to managing cyber risks and downtime:
- Diversification of Risk: By combining SaaS with on-premises infrastructure, businesses diversify their risk and avoid dependency on a single provider or platform. This reduces the likelihood of being completely shut down in case of a SaaS outage or a cyber incident affecting the service provider. Cyber insurance providers view such diversification favorably, as it reduces the potential for prolonged and costly business interruptions, leading to better coverage terms.
- Turnkey Air-Gapped and Immutable Backups: On-premises systems can be configured with turnkey air-gapped and immutable backups, which are critical for protecting data from ransomware attacks, accidental deletions, and other cyber threats. These backups provide an isolated and unalterable storage environment that prevents data from being tampered with or destroyed. From an insurance perspective, implementing such backups demonstrates a proactive approach to risk mitigation and data protection. Insurers are more likely to provide comprehensive coverage and lower premiums to businesses that maintain robust, air-gapped and immutable backup solutions.
- Seamless Integration and Failover: Hybrid setups allow for seamless integration between on-premises and cloud environments, enabling swift failover and recovery during an outage. With this setup, critical applications and data continue to operate from alternative environments, reducing downtime and potential financial losses. This capability aligns with the requirements of cyber insurance providers, who require rapid recovery mechanisms as a condition for coverage.
Disaster Recovery Planning: Developing Comprehensive Plans that Include Both SaaS and On-Premises Solutions
A well-thought-out disaster recovery (DR) plan is essential for ensuring business continuity and optimizing cyber insurance outcomes:
- Multi-Environment Disaster Recovery Plans: DR plans must encompass both SaaS and on-premises environments to ensure coverage of all potential failure points. This includes planning for SaaS outages, on-premises hardware failures, ransomware attacks, and network disruptions. A comprehensive DR plan not only minimizes the impact of such events but also helps meet cyber insurance policy requirements. Insurers expect businesses to have clearly defined recovery procedures that can be swiftly executed to limit downtime and data loss.
- Regular Testing and Validation: Regular testing and validation of DR plans are crucial for ensuring that recovery strategies are effective and aligned with business needs. Frequent testing helps identify gaps and weaknesses in the DR plan and allows for timely updates. Cyber insurance policies often include clauses that require proof of regular DR plan testing. Therefore, maintaining up-to-date and validated DR plans can prevent claim denials and ensure smoother claim processing in case of an incident.
- Incorporation of Turnkey Air-Gapped Backups: Including turnkey air-gapped and immutable backup solutions in the DR plan is vital. These solutions provide a secure, last-resort backup that cannot be compromised during an attack, ensuring data availability for recovery. In the context of cyber insurance, the presence of such measures significantly influence the coverage terms by showcasing a strong commitment to data protection and recovery readiness.
Regular Reviews: Importance of Regularly Reviewing Insurance Policies and SLAs to Align with Business Needs
Regularly reviewing and updating both cyber insurance policies and service-level agreements (SLAs) is critical for ensuring that they remain aligned with evolving business requirements and risk landscapes:
- Alignment with Evolving Risks: Cyber threats are continually evolving, and insurance policies must keep pace. Regularly reviewing cyber insurance policies helps businesses stay ahead of emerging risks and adjust their coverage accordingly. This proactive approach not only ensures comprehensive protection but also reduces the likelihood of encountering unexpected policy exclusions or coverage gaps when a claim is filed.
- Assessing SLA Adequacy: SLAs with SaaS providers should be reviewed to ensure they provide adequate protection and guarantees in case of downtime or data breaches. SLAs must clearly outline the provider’s responsibilities, downtime compensation, and incident response protocols. When reviewing cyber insurance policies, businesses must consider how SLAs interact with their insurance coverage and identify any areas where additional coverage or specific endorsements may be necessary.
- Policy Updates Based on IT Infrastructure Changes: As businesses adopt new technologies or shift their IT infrastructure, they should update their cyber insurance policies to reflect these changes. For example, integrating turnkey air-gapped and immutable backups or implementing a new hybrid cloud strategy may affect the risk profile and coverage needs. Keeping policies current with these changes helps avoid coverage disputes and ensures that the business is adequately protected against all potential risks.
Conclusion
SaaS solutions offer convenience and scalability, relying solely on them presents significant risks, particularly when it comes to downtime and the complexities of cyber insurance coverage. A balanced approach that integrates on-premises systems, robust disaster recovery planning, and regular reviews of both insurance policies and SLAs helps businesses mitigate these risks.
By incorporating strategies like turnkey air-gapped and immutable backups, organizations improve their resilience, reduce downtime, and ensure they meet the requirements for comprehensive cyber insurance coverage.
Diversifying your IT infrastructure is not just a best practice—it’s a necessity for safeguarding business continuity in an unpredictable digital landscape.
Upgrade your SaaS strategy with the added security and control of an on-premises system. Contact our experts today to discuss your environment and build the right solution for your business.
