Why Your Medical Practice's Cyber Insurance Might Not Pay Out — And What to Do About It

Cyber insurance has become standard in conversations about healthcare risk management. Most independent medical practices in Palm Beach County carry some form of cyber liability coverage — and most practice owners assume that coverage means they're protected if something goes wrong.

That assumption is increasingly dangerous.

The cyber insurance market has changed dramatically in the past two years. Carriers have tightened underwriting requirements, added exclusions, and increased the documentation they require before paying claims. Practices that purchased policies two or three years ago under more permissive underwriting standards are discovering — at the worst possible moment — that their current security posture doesn't meet the requirements their policy actually demands.

I've been doing healthcare IT in Palm Beach County for 25 years. The cyber insurance conversation has become one of the most important conversations I have with independent medical practices — because the gap between what practices think their policy covers and what it actually covers is growing, and the consequences of that gap are severe.

Why cyber insurance claims get denied

The most common reason cyber insurance claims are denied in healthcare is a failure to maintain the security controls the policy requires. Cyber insurance policies are not unconditional. They contain representations — statements about your security posture that you make at the time of application and are expected to maintain throughout the policy period.

When a claim is filed, the carrier investigates. They look at your security controls at the time of the incident. If those controls don't match what your application represented — or don't meet the minimum standards your policy requires — the claim can be denied, reduced, or disputed.

The most common security control failures that lead to denied claims in healthcare:

Multi-factor authentication not implemented. MFA is now a standard requirement in virtually every cyber insurance application. Carriers ask specifically whether MFA is enabled on email, remote access, and systems containing sensitive data. A practice that answered yes at application but hasn't actually implemented MFA consistently across all systems is misrepresenting its security posture — and creating grounds for claim denial.

Backup not tested. Policies increasingly require documented evidence of regular backup testing — not just that a backup system exists, but that recovery from backup has been verified. A practice that has a backup system but has never tested restoration from it may find its ransomware claim disputed on the grounds that the backup requirement wasn't actually met.

Endpoint protection below the required standard. Basic antivirus is no longer sufficient for most cyber insurance carriers. Policies increasingly require endpoint detection and response — a more sophisticated tool that actively monitors and responds to threats rather than scanning for known signatures. A practice running basic antivirus on its clinical workstations may not meet its policy's endpoint protection requirement.

No documented risk assessment. Many policies require evidence of a periodic risk assessment. A practice that has never conducted a formal, documented HIPAA risk assessment may find that this requirement — which appears in the policy fine print — becomes relevant when a claim is filed.

Unpatched systems. Carriers increasingly investigate whether the breach exploited a known vulnerability for which a patch was available. A practice whose systems weren't being patched regularly may face a disputed claim if the breach exploited a vulnerability that could have been closed with a timely update.

The application process and what it actually means

Most practice owners treat the cyber insurance application as a formality — a series of yes/no questions to be answered quickly so the policy can be bound. That approach creates significant risk.

Every question on a cyber insurance application is a representation about your security posture. If you answer yes to "Do you have MFA enabled on all systems containing sensitive data?" and your practice doesn't actually have MFA consistently implemented, you have made a material misrepresentation. Most cyber insurance policies contain provisions that allow carriers to void coverage or deny claims based on material misrepresentations in the application.

The problem is that many practice owners answer these questions based on their understanding of what they have — which is often different from what actually exists. They know their IT provider set up some security controls. They assume those controls are what the insurance application is asking about. But without specific knowledge of what's actually in place, answering these questions accurately is difficult.

This is one of the most important reasons a practice should review its cyber insurance application alongside its IT provider — not as a legal review, but as a verification exercise. Before you answer yes to a question about MFA or endpoint protection or backup testing, your IT provider should be able to confirm specifically that the described control is in place and functioning.

What carriers are requiring in 2026

The underwriting requirements for cyber insurance have tightened significantly. Here is what most carriers are now requiring or asking about for medical practices:

Multi-factor authentication on email, remote access tools, cloud applications, and any system containing sensitive data — including your EMR.

Endpoint detection and response on all workstations and servers — not basic antivirus, but active threat detection and response capability.

Regular, tested backup with offsite or cloud storage — and documented evidence that restoration from backup has been tested.

Email filtering and phishing protection — advanced filtering that evaluates emails before they reach staff inboxes, not just spam filtering.

Security awareness training for all staff — with documentation of completion.

Privileged access management — controls on administrative accounts, including MFA for admin access and logging of privileged activity.

A documented incident response plan — evidence that the practice has a defined process for responding to a security incident.

Annual security assessments — documented evidence of periodic review of the practice's security posture.

If your current IT arrangement isn't delivering all of these — or if you're not sure whether it is — your cyber insurance policy may be providing less protection than you're paying for.

The coverage gap most practices don't know they have

Beyond claim denial risk, there's a second coverage gap worth understanding — the gap between what a policy covers and what a breach actually costs.

The costs of a healthcare data breach extend well beyond what most cyber insurance policies are designed to cover. Direct costs include forensic investigation, notification to affected patients, credit monitoring for affected individuals, regulatory penalties, and legal fees. Indirect costs include operational downtime, staff time diverted to breach response, lost revenue during recovery, and the long-term reputational impact of a public breach notification.

Most cyber insurance policies cover some subset of these costs — typically the direct costs, up to the policy limit, subject to deductible and exclusions. They rarely cover the full economic impact of a significant breach. The average healthcare data breach costs $10.9 million in total impact. Most independent practice policies have limits well below that figure.

This doesn't mean cyber insurance isn't worth carrying. It means cyber insurance should be one layer of a risk management strategy — not the entire strategy. The practices that manage breach risk most effectively are the ones that combine adequate coverage with strong preventive security controls that reduce the likelihood of a breach in the first place.

What to do before your next renewal

Cyber insurance renewals are the right time to review your security posture against your policy requirements — not after a claim is filed.

Before your next renewal, work through these steps with your IT provider.

Review your current policy and identify every security control it requires you to maintain. Don't just look at the application — read the policy itself, specifically the conditions and the exclusions.

Ask your IT provider to confirm, specifically and in writing, which of those controls are currently in place. Not "we have security tools" — which specific tools, covering which systems, with which configurations.

Identify any gaps between what your policy requires and what's actually in place, and address them before renewal. A gap identified before renewal is a manageable problem. A gap identified during a claim investigation is a crisis.

When you renew, answer the application questions based on verified information — not assumptions about what your IT provider has set up. If you're not sure whether a control is in place, ask before you answer.

Where to start

If you're a medical practice in Palm Beach County and you're not certain your security posture meets your cyber insurance policy requirements, the right starting point is an honest assessment of what you actually have in place.

Skyline Technology offers a complimentary HIPAA IT Risk Assessment for dental and medical practices in Palm Beach Gardens, Jupiter, Stuart, and Port St. Lucie. It covers your security posture across six categories and produces a written summary with prioritized recommendations — yours to keep with no obligation.

Anthony Lauria is the founder of Skyline Technology, a Palm Beach Gardens-based managed IT provider serving dental and medical practices exclusively across Palm Beach, Martin, and St. Lucie counties. He has been in IT since 2000 and has lived in Palm Beach Gardens since 2001.

Request a complimentary HIPAA IT Risk Assessment at skyline.technology/hipaa-assessment or call or text (561) 316-8665.