Why Cyber Insurers Want Your Vendors Covered Too

The Rise of Cascading Cyber Insurance Requirements—and What They Mean for Your Business

As cyber threats evolve and losses mount, insurance providers are changing how they assess and price cyber risk. Increasingly, it’s not just your company’s cybersecurity posture under the microscope—your vendors’ practices and coverage are now part of the equation.

This growing trend, which we’ll refer to here as cascading cyber insurance requirements, reflects a broader shift in how insurers manage third-party risk. While not yet a formal industry term, it’s a concept gaining traction—and one your business needs to understand.

What Are Cascading Cyber Insurance Requirements?

Simply put, insurers are starting to expect (and in some cases require) that policyholders ensure their critical vendors also carry cyber liability insurance. That includes IT providers, SaaS vendors, law firms, payment processors—any third party that handles sensitive data or has access to your systems.

It’s a strategy aimed at reducing claims caused by supply chain vulnerabilities. By shifting accountability downstream, insurers hope to minimize losses triggered by uninsured or underprepared vendors.

Why the Change?

Cyberattacks increasingly exploit third-party relationships. Breaches like MOVEit, SolarWinds, and Kaseya weren’t just isolated vendor failures—they triggered a cascade of downstream liability across hundreds of organizations.

In response, insurers are now:

• Asking policyholders whether their vendors carry cyber insurance

• Requiring contracts to include minimum insurance clauses

• Excluding or limiting coverage for third-party-originated breaches unless these standards are met

This approach helps insurers manage risk more holistically—and puts new pressure on businesses to scrutinize their digital supply chains.

What This Means for You

If your business is applying for or renewing a cyber policy, expect questions like:

• Do your vendors carry cyber liability insurance?

• Do your contracts require it?

• Do you verify and track compliance?

If your answer is “no” or “not sure,” you may face:

• Higher premiums

• Policy exclusions or coverage sublimits

• More scrutiny during underwriting or claims

What You Can Do Now

To prepare for cascading cyber insurance requirements—and strengthen your cyber liability posture—take these steps:

1. Classify your vendors by risk. Focus on those with access to sensitive systems or data.

2. Require cyber insurance in contracts. Set minimum policy limits and coverage types.

3. Verify and track compliance. Request certificates of insurance (COIs) and monitor renewals.

4. Align teams. Make sure legal, IT, risk, and procurement are on the same page.

5. Document your process. Insurers will ask what controls you have in place—be ready with answers.

Final Thought

Cascading cyber insurance requirements may not be a formal term (yet), but the concept is already reshaping how companies manage third-party risk. Insurers want everyone in your digital ecosystem to share responsibility—and coverage.

By getting ahead of this shift, you’ll not only protect your business from gaps and exposures but may also position yourself for better rates and broader protection.

Want help aligning your vendor requirements with insurance expectations?

👉 Schedule a strategic cyber liability consult with Bawn