Protect your clients against supply-chain cyber risk with dependent business interruption coverage

Find out why businesses need DBI coverage to insure against cyber threats associated with suppliers and partners.

In today’s digital age, businesses across all industries are more reliant than ever on technology, creating a growing vulnerability to cyber risks within their supply chains. Cyber supply-chain risks pose a serious threat to companies, as even minor disruptions from third-party providers can lead to significant financial losses.

This article explores the importance of dependent business interruption (DBI) insurance coverage as a critical solution for managing cyber risks within the supply chain. We’ll discuss recent high-profile cyber incidents, challenges that businesses face, and how working with a cyber insurance expert like Costero can help brokers and their commercial clients stay ahead of these risks.

Cyber supply chain challenges facing your commercial clients

Regardless of how secure a business’s internal systems are, no organisation is entirely immune to cyber supply-chain risk. Many businesses, especially those operating complex supply chains, rely heavily on third-party software and technology providers for their day-to-day operations. The failure of these external providers can result in widespread interruptions, even if a company’s internal networks are secure.

For example, businesses may depend on cloud services, IT management platforms, or digital payment systems to operate efficiently. When these third-party services suffer from system failures, software glitches, or cyberattacks, the businesses that rely on them can experience significant operational disruptions. These interruptions could affect thousands or even millions of users or customers, depending on the scale of the provider. This is known as a systemic risk, where a single point of failure in a major provider’s network can have a cascading effect, bringing entire industries to a standstill.

In the headlines: cyber incidents and their financial impacts

Recent events have highlighted just how costly these supplier-related cyber incidents can be – such as:

• CDK Global: In June 2024, a ransomware attack against software provider CDK Global caused widespread disruption across North American auto dealerships. For example, the attack forced the giant Sonic Automotive group to announce losses amounting to $30 million in income due to the prolonged system outage. This case demonstrates the far-reaching financial consequences that businesses can face when third-party technology providers are impacted by a cyber event. (Source: Data Breach Today)

• CrowdStrike: In July 2024, leading cybersecurity provider CrowdStrike distributed a faulty software update to its commercial clients that crashed around 8.5 million Microsoft Windows systems globally. This led to significant disruptions across various industries. For example, the disruption caused by the outage cost Delta Air Lines a reported $500m, including lost revenue and compensation to passengers. Although the incident was not a result of a malicious cyberattack, it nonetheless illustrates how businesses are increasingly dependent on third-party technology partners, underscoring the need for businesses to have contingency plans in place, even when their own systems remain uncompromised. Source: BBC News)

Providing cyber insurance solutions for managing supply chain risks

Given the unpredictability of cyber incidents, it’s challenging for businesses to evaluate their exposure to supply-chain risks. However, having the right cyber insurance coverage, particularly “dependent business interruption” (DBI) coverage, is a vital way to mitigate this exposure. DBI provides insurance protection for companies when a third-party service provider suffers an outage or cyberattack, which in turn disrupts the insured business’s operations.

A critical feature of any robust cyber insurance policy is the “system failure trigger” for DBI. This ensures that the policy covers businesses for disruptions caused by system failures such as those seen in the CrowdStrike incident, which are not necessarily the result of a cyberattack but can have equally damaging impacts.

Some cyber policies on the market only include standard (not dependent) business interruption cover, which protects businesses against direct financial losses resulting from their own network being compromised by a cyber event. This type of coverage is essential for reimbursing the loss of income during network downtime and covering the costs of responding to the incident. However, it is important to note that business interruption cover is generally limited to the insured business’s own network. As a result, it does not typically cover losses arising from a failure of a third-party’s network – highlighting the importance of having DBI coverage as part of a broader risk management strategy.

How Costero can help you meet your clients’ cyber risk challenges

As a broker, your commercial clients depend on you to provide comprehensive insurance solutions that address their specific needs, and nowhere is this more apparent than in the evolving world of cyber risk. At Costero, we specialise in tailoring cyber insurance programmes to meet the unique risk profiles of your clients. Rather than providing generic, off-the-shelf policies, we take the time to understand each of your client’s operations, their reliance on third-party technology providers, and their broader risk appetites.

Working with Costero means gaining access to Lloyd’s of London and other specialist re/insurance markets. We deliver competitively priced, bespoke programmes that offer your clients comprehensive coverage. We ensure that the policies we negotiate on behalf of your clients include key elements like dependent business interruption, system failure triggers, and other critical protections that can safeguard businesses against systemic risks within their supply chain. Our experts continually review the evolving cyber threat landscape to ensure that your clients’ policies will remain up-to-date and fit-for-purpose.

Take the next step to better cyber coverage for your clients

With the increasing complexity of today’s digital supply chains, ensuring your clients are protected from the financial impacts of cyber disruptions is more important than ever. At Costero, we understand the intricacies of cyber insurance and are committed to helping you secure the right protection for your clients. Don’t settle for a one-size-fits-all policy – talk to us today about a cyber insurance programme that’s customised to each client’s specific needs and risk profile.

To learn more about our commercial cyber insurance solutions and discuss your goals, please get in touch with our expert Jonathan Olley at Costero Brokers.