What is an Insurance Limit?
An insurance limit is the maximum amount an insurer will pay for a claim covered by an insured’s policy.
Definition: An insurance limit is the maximum amount an insurer will pay for a claim covered by an insured’s policy.
How to Help Your Insured Select Policy Limits
When selecting an insurance policy, clients must consider several factors, including minimum/maximum limits as well as any legal requirements that must be met. One way to approach the topic of insurance policy limits is to plan for a worst-case scenario.
Sophos, a cybersecurity software and hardware company recently published its annual State of Ransomware Report. Notably, it was found that the average ransom payment in 2021 amounted to $812,360, a figure that is slated to grow year-over-year.
On top of the high payouts demanded during ransomware attacks, victimized organizations find themselves paying additional costs associated with operational downtime and lost opportunity. In the Sophos report, respondents that suffered an attack noted that it took, on average, one month to fully recover.
Let’s say an organization has cyber liability coverage with a limit of $500,000. Using the figure above from the Sophos report, if this organization suffers a ransomware attack at a cost of $812,360, their insurance provider will provide coverage for a maximum amount of $500,000. If the provider pays this amount, the insured will still be on the hook for $312,360 in addition to any costs related to operational roadblocks.
Types of Insurance Limits
When reviewing a cyber liability policy, you may encounter various types of policy limits, such as:
- Per-occurrence Limits
- Aggregate Limits
- Coverage Sublimits
Be sure to review coverage documents carefully as limits can change from one policy to another.
Per-occurrence Limits
A per-occurrence limit is the maximum amount of money an insurer will pay after an insured has filed a single claim covered by their policy.
Aggregate Limits
An aggregate limit is the maximum amount of money an insurer will pay for all claims filed by an insured during their policy period.
Per-occurrence vs. Aggregate Limits
The main difference between per-occurrence limits and aggregate limits has to do with the number of claims involved. Let’s say an organization has an insurance policy with a per-occurrence limit of $2 million and an aggregate limit of $4 million. During the year, the organization finds itself on the receiving end of two separate data breaches, each at a cost of $2 million.
Each time the breach occurs, the organization’s per-occurrence limit provides enough coverage to handle the costs. However, at this point the total aggregate limit of $4 million has now been reached. This means that, if a third cyber attack were to occur, this insured company would be required to cover any additional costs out-of-pocket.
Coverage Sublimits
A sublimit is an additional limitation in an insurance policy on the coverage of certain losses. A sublimit is part of the original limit that would normally apply to any losses covered by a policy. Rather than providing extra coverage, sublimits specify caps on specific losses.
Sublimits are often stated as a percentage or dollar amount of the total coverage available. For example, a cyber policy with a $4 million aggregate limit might include a sublimit of $500,000 to cover losses stemming from a ransomware attack. As a result, the insured cannot receive more than the amount specified on their policy to cover losses directly related to this type of attack.
How to Choose Policy Limits
When it comes to cyber insurance, it’s important to help your client choose the right limit. Being underinsured puts an organization at greater risk of being sued or bearing the responsibility for large, out-of-pocket costs that stem from cyber attacks. However, higher limits come at higher premiums, which can be useful if a claim is filed.
If you or your client are in need of advice, please reach out to our brokerage team. They can provide clarity, ensuring that you and your clients are making the right decision about cyber liability insurance.
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