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First-Party Coverage vs. Third-Party Coverage

Hero: First-Party Coverage vs. Third-Party Coverage


The difference between first- and third-party coverage can be confusing at first. The distinction essentially comes down to who is filing the claim: the policyholder or a third party. The distinction can seem nuanced even to insurance industry veterans. Below, we'll walk you through the main differences between the two types of coverage and how they relate to small business.

What is first-party coverage?

First-party coverage is any insurance plan that directly covers the policyholder’s losses. Organizations, individuals, or groups of individuals may be the policyholder for this type of liability coverage.Any insurer that the policyholder can directly file a claim with is offering the policyholder first-party coverage. Common examples of first-party insurance policies include:

  • Health insurance

  • Insurance policies that cover damage to the policyholder’s personal or business property due to natural disasters

  • Renters insurance

  • Certain auto insurance policies, such as:

    • Personal injury protection coverage

    • Uninsured motorist coverage

    • Medical payment coverage

  • Cyber insurance

In the event the policyholder’s insurance company closes, the insurer may transfer the plan to another insurer. Most states also have a guaranty association that further protects the policy.

What is third-party coverage?

Third-party coverage is a plan that covers a policyholder against the losses of others for which they may be held liable. Organizations can sign up for this type of coverage, just as with first-party coverage. The policy activates when a third party makes a claim against the insured policyholder. Common examples of third-party insurance include:

  • Auto liability insurance

  • Homeowner’s insurance for on-premises injuries to third parties

  • General commercial liability insurance

  • Commercial auto insurance

  • Umbrella insurance policies

  • Public liability insurance

  • Product liability insurance

First-party coverage vs. third-party coverage: The main difference

First-party coverage gives the policyholder  a financial safety net against losses they incur directly. Third-party coverage does the same for unexpected incidents that happen to the policyholder but primarily cause losses for others.

Notably, cyber insurance can be either first- or third-party coverage, and cyber policies often include both types. Certain cyber insurance coverages, such as business interruption and extra expenses, cover the policyholder’s direct losses from a cyber incident. Others, such as Tech E&O insurance, protect organizations from liability when cyber incidents that affect the business result in customer or client losses.

Examples of first-party and third-party cyber insurance claims

Imagine an organization experiences a security failure that results in its systems going offline for two days, resulting in financial loss and extra expenses to bring the business back online. If the organization is insured under a cyber insurance policy, it can file a claim to cover these costs. This would be a first-party claim since it pertains to an incident that happened directly to the policyholder.

But the breach is severe, and the organization’s files containing its customers’ personal identifying information (PII) are also breached. If a threat actor uses this information to steal a customer’s identity and the customer experiences financial loss, the customer can sue the organization. The organization’s tech E&O coverage through its cyber insurance policy would kick in with third-party coverage to pay for the customer’s expenses.

Provide first-party and third-party coverage through Coalition

First-party and third-party policies can lessen an organization’s financial burden amid a variety of unexpected situations. This is especially important when it comes to cybersecurity. In fact, in 2021 the FBI’s Internet Crime Complaint Center (IC3) recorded more than $6.9 billion in potential cyber incident losses. Any business can experience cyber incidents: Verizon’s 2022 Data Breach Investigations Report found that human error within organizations caused 82% of breaches.

As a broker, you can safeguard your clients with Active Insurance from Coalition — the leading carrier of small and medium business (SMB) commercial insurance. This policy includes first- and third-party coverages alongside active risk assessment, protection, and response. It pinpoints an organization’s likeliest risks, continuously monitors for emerging vulnerabilities, and implements proactive measures to minimize exposures. Coalition’s Active approach to first- and third-party cyber insurance can help you earn your clients’ trust across the board. 

A full list of Coalition’s coverages is available here.

Brokers, if you're interested in offering Coalition cyber insurance to your clients, click below to get appointed. If you have questions about your organization's cyber risk score, try our Cyber Risk Assessment — it's completely free.