Dispelling the Myth That ‘Cyber Insurance Doesn't Pay Claims’

“Cyber insurance doesn’t pay claims.”

This is a common perception in our industry that stems from a range of factors, including misunderstandings about claims data, differences in coverage and policy terms, and incomplete information. By taking a closer look at the underlying sources and context, brokers can help clients develop a more informed view of how cyber insurance responds when an incident occurs.

It’s easy to dismiss this myth as ignorance. Cyber insurance pays out billions of dollars in claims every year, and policies provided by Coalition paid more than $315 million in claims in 2025 alone.

But the danger for our industry is that the notion slowly accumulates and develops into a sales objection rooted in misunderstanding among insurance buyers. That reluctance can make it harder for businesses to evaluate whether cyber insurance is right for them, especially when coverage decisions are made during a brief conversation with their broker.

When clients raise this objection, brokers can provide context to control the narrative and rebut the myth that cyber insurance doesn’t pay claims. Below, we’ll explore how to overcome misinterpreted data and fabricated statistics to explain how cyber insurance is designed to respond to an event. 

Claims closed without payment are often a victory

A major point of confusion is industry data showing that many reported claims close with $0 paid in indemnity. The National Association of Insurance Commissioners (NAIC) reported that just 26% of cyber insurance claims in 2025 were closed with indemnity payments. By comparison, Verizon reported that just 55% of cyber insurance claims in 2025 had a recorded pay-out.

These statistics are easy to misunderstand. Critics label claims that close without an indemnity payment as “denials,” but in reality they reflect the value of cyber insurance in providing support during a crisis. That support can help investigate and contain an incident, potentially reducing disruption and costs.

Cyber incidents are inherently uncertain. Unlike a fire, where a business can visually verify destruction, a cyber insurance claim often starts with the detection of suspicious activity. Calling the claims hotline early can serve two purposes: 

1. Satisfy reporting requirements in the insurance policy

2. Unlock pre-claim legal and forensics practitioners who step in to investigate

If the threat is mitigated before significant damage occurs, costs may remain below the policy retention and, thus, not trigger a payout. A forensics team may also quickly determine the suspicious activity is benign.

Critics label claims that close without an indemnity payment as “denials,” but in reality they reflect the value of cyber insurance in providing support during a crisis. 

Rather than billing a policyholder for a few hours of legal or forensics work, Coalition’s Active Cyber Policy includes Rapid Response Services, providing immediate access to critical resources that are not subject to any retention or limit. This helps explain why 64% of Coalition’s closed claims in 2025 resulted in no out‑of‑pocket loss for policyholders in 2025.

Retentions and limits reflect intentional risk choices

Legitimate data on the extent to which an incident is covered by insurance can also get twisted. Critics often point to a NetDiligence report that noted "insurance covered only 32% of total incident costs" across thousands of historical cyber claims.

Out of context, this may sound alarming, but the details matter: 11% of claims in the report remained open, which means the payouts could still rise. Furthermore, the real explanation for this data is rooted in the art of buying insurance.

Enterprises retain more risk

Larger organizations maintain healthy balance sheets and often deliberately select higher retentions (averaging ~$1.8 million) to absorb the cost of most incidents. By design, insurance pays an average of 27% of their total incident costs.

SMBs transfer more risk

Small and midsize businesses (SMBs) typically select lower retentions (averaging ~$41,000) and rely far more heavily on insurance. As a result, insurance covers 69% of SMB incident costs.

When critics claim cyber insurance "only covers a fraction of the cost," they may be confusing a buyer's choice of retention and limit with an insurer’s failure to pay. 

Under insurance is a persistent issue

Some cyber losses are so extreme they blow through the policy limit. For example, one claim of more than $500 million caused the average incident cost among large businesses paid by insurance to fall from 42% in 2020 to 13% in 2021. In 2022, two claims of more than $100 million each drove the average SMB incident cost paid by cyber insurance down to 44% (vs. 86% and 83% in 2020 and 2021, respectively).

When critics claim cyber insurance "only covers a fraction of the cost," they may be confusing a buyer's choice of retention and limit with an insurer’s failure to pay.

This is why businesses should work with a specialist cyber broker who can help assess their exposure and choose coverage, limits, and retentions suited to their operations and risk profile. 

Fabricated stats and AI hallucinations fuel disinformation

Beyond misinterpreted reports lies a complex web of unsupported data. Often, it begins with a website posting a fabricated, possibly hallucinated, statistic without a valid source. Then, the stat is recirculated via citations from other websites, LinkedIn posts, and popular AI tools that now attach references to their output.

Fabricated stats and hallucinations can negatively shape perceptions of cyber insurance and make it harder for businesses to evaluate coverage. 

There are numerous articles citing fabricated statistics about cyber insurance claims. Rather than adding hyperlinks that increase their position in search rankings, we’ve summarized the most common ones below:

• “82% of denied claims involved no MFA”: This is attributed directly to Coalition across multiple third-party blogs. This statistic is not only factually incorrect, but also we’ve never published data on claims denials.

• "44% of claims are denied": This phantom stat is attributed to Advisen and widely cited across technology blogs and trade outlets. Advisen (and its parent company Zywave) never published reports on cyber claims denials, as confirmed by their long-standing editors.

• “40%+ of claims denied”: This figure is cited in MSP blogs attributing a massive denial rate to Fitch Ratings. Neither Fitch's 2024 nor 2025 cyber reports contain this figure, as confirmed by a senior leader of their cyber practice.

Fabricated stats and hallucinations aren’t just a harmless online game of telephone or sloppy AI scraping. They can negatively shape perceptions of cyber insurance and make it harder for businesses to evaluate coverage. Recognizing who benefits most from these narratives makes it easier to call them out for what they are.

How brokers can control the narrative

You don’t need to memorize every report or debate fake internet stats on a client call. The goal isn’t to just dismiss these concerns, but to help businesses understand how coverage may respond and what factors can affect a claim outcome. Consider these responses if your client raises the "cyber insurance doesn't pay claims" objection:

1. ‘I heard most claims close without a payout’

Explain that a $0 payout can be a crisis prevented.

Your response: "Many cyber incidents can be mitigated and resolved with support from incident responders and legal teams, which some insurers will pay for outside the retention (depending on the policy). A cyber insurance policy can provide more than just reimbursement. You're enlisting an on-demand team that helps neutralize threats before they result in a larger loss."

2. ‘I read insurance only covers a fraction of total breach costs’

Clarify the difference between unpaid claims and a business’ intentional choices on retentions and limits, while also cautioning about being underinsured.

Your response: "Coverage depends on the policy’s terms, including retention and limits, and a lower payment doesn’t necessarily indicate a refusal to pay. Many businesses intentionally opt for higher retentions to keep their premium costs down, choosing to handle smaller expenses on their own balance sheet. However, cyber incident costs can be volatile, and it’s important to work with an experienced broker to select the right limit for your business."

3. ‘I saw a stat about how many claims get denied’ 

Encourage clients to check the source, methodology, and context behind the statistic..

Your response: "It’s worth checking the source of that information. There’s a lot of fabricated data on the internet, and it’s not uncommon for security vendors to try to convince businesses to allocate budget toward software tools instead of insurance. When you look at primary industry reports, cyber insurers pay out billions every year. Just remember outcomes depend on policy terms, the nature of the incident, and the applicable coverage."

Equip yourself with real-world experiences

Nothing dispels a flimsy myth faster than tangible proof. When your clients need concrete examples, show them how Coalition steps up during a crisis with examples of actual policyholder experiences.  

Explore our library of case studies to see how Coalition supports policyholders through the claims process, works to recover stolen funds, and helps policyholders mitigate losses altogether.

REAL STORIES. REAL VOICES.

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This blog post is designed to provide general information on the topic presented and is not intended to construe or render legal or other professional services of any kind. If legal or other professional services are required, the services of a professional should be sought. Descriptions of coverage are for general informational purposes only and are subject to the terms and conditions, including the limitations and exclusions, of the applicable policy. The reader is cautioned to consult independent professional advisors and formulate independent conclusions and opinions regarding the subject matter discussed herein. Coalition makes no representations as to the accuracy or completeness of this content. Any action taken based on this information is at the sole discretion and risk of the reader. Coalition and its affiliates expressly disclaim any liability for losses or damages resulting from the use of or reliance on this information, which is used strictly at the reader’s own risk. The blog post may include links to other third-party websites. These links are provided as a convenience only. Coalition does not endorse, have control over nor assume responsibility or liability for the content, privacy policy or practices of any such third-party websites.

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