Cyber threats have never been the exclusive domain of big business. Despite their deep pockets and apparent ability to pay ransoms, large corporations aren’t necessarily primary targets, instead cyber criminals look for the easiest to attack and that makes small and medium-sized enterprises (SMEs) the most vulnerable. With the average cost of a data breach in the UK at around £3.11 million for organisations using AI/automation, and likely higher for those without, cyber attacks can kill – or at least, seriously wound – businesses.
Cyber insurance is becoming increasingly essential, not as a luxury, but as a critical business safeguard.
Why Cyber Insurance matters for small businesses
Small businesses are increasingly targeted and often less prepared. In fact, around 42 % of UK SMEs experienced a cyber attack in the past year, and the average cost of a serious breach for an SME can be around £8,000, excluding the reputational damages an attack brings.1
Cyber insurance provides vital protection:
- Cost Mitigation: Covers notification, data recovery, legal fees, business interruption, reputation repair, and in some cases, ransom or extortion.
- Support Infrastructure: Insurers often offer pre-incident support, risk assessments, guidance on security improvements, and training.
- Operational Continuity: Helps you bounce back fast and with less financial dislocation.
Myths vs Truths: what cyber insurance actually covers
Myth: “Cyber insurance is just for multinational corporations.”
Truth: Nearly half of SMEs in the UK report breaches, and even relatively modest breaches can saddle a business with thousands in recovery costs.
Myth: “Insurance will foot all costs, so security investments aren’t necessary.”
Truth: Insurers expect you to maintain security basics – firewalls, Multi Factor Authentication (MFA), patching, and may adjust premiums or deny claims if controls are missing.
Myth: “Claims payout is guaranteed and easy.”
Truth: Claims depend heavily on adherence to policy terms and demonstrating due risk management. Cyber insurance is as much about preparation as pay-out.
Myth: “Cyber Essentials is redundant if I have insurance.”
Truth: Quite the opposite. Cyber Essentials is a security baseline and can reduce the likelihood of claims by up to 92 %. It can also help lower premiums and enable eligibility.
Cyber Insurance is not just for big businesses
No matter your size, you should still be considering Cyber Insurance. Even though SMEs are smaller in scale, they often take on similar risks:
- Phishing, credential compromise, and ransomware are often the first way cyber criminals try to breach systems – and many smaller businesses are more vulnerable to these kinds of attacks.
- Supply chain weaknesses are becoming a common way hackers infiltrate systems.
- Regulators, such as the ICO, can impose fines of up to 4% of your global turnover if your data protection isn’t up to scratch. These fines can put a real strain on your finances
Without insurance, even minor cyber incidents can halt operations and jeopardise your business’s survival.
Cyber Essentials: the vital link to insurance readiness
The UK’s Cyber Essentials certification is government-backed and lays out five core controls: firewalls, secure configuration, access control, malware protection, and patch management. It comes in two tiers:
- Basic (self-assessment) – cheaper and quicker, ideal for SMEs.
- Plus (independent validation) – offering stronger assurance.
Eligibility for many cyber insurance policies often considers whether you hold Cyber Essentials, and insurers may offer premium discounts or, in some cases, require it.
For a broader governance framework, IASME Governance integrates Cyber Essentials with broader risk controls, mapping closely to ISO/IEC 27001.
Real UK Cases: when Cyber Insurance made a difference
Concrete, real-life examples are rare due to confidentiality—but we can cite credible scenarios:
- M&S
In April 2025, a cyber attack on Marks & Spencer disrupted online orders, payments, and click-and-collect, costing an estimated £300 million. Having doubled its cyber insurance beforehand, M&S is claiming up to £100 million, with Allianz and Beazley among the insurers paying out – making it one of the largest cyber insurance claims in UK history.2
- Small UK PR and marketing consultancy
This SME, just weeks into having cyber risk cover with Hiscox, was hit by ransomware. Upon reporting the incident, they were immediately connected with their insurer’s specialists who helped identify the malware, support IT remediation, and rebuild systems from backups. In the end, the business was offline for only a couple of days, a far better outcome than initially anticipated and it was the insurer’s proactive support that proved invaluable.3
While the companies involved are not named, it’s widely acknowledged that well-prepared SMEs backed by cyber insurance have regained traction swiftly after ransomware or phishing incidents showing the tangible value of coverage, as long as it is paired with strong preparedness.
Requirements: what small businesses must demonstrate for coverage
To obtain and benefit from cyber insurance, most policies require you to show:
- Baseline Security Controls: Firewalls, Endpoint Detection and Response (EDR), MFA, patching, secure configurations.
- Cyber Essentials Certification (basic or Plus), or IASME Governance.
- Staff Training: Evidence of phishing awareness, strong password etiquette, security culture.
- Incident Response Plan: Documented process for breach containment, notification, recovery.
- Regular Audits or Reviews: To show active defence and risk awareness.
Policies typically split into:
- First-party coverage: Your own costs – downtime, data recovery, PR.
- Third-party coverage: Claims from customers, partners, regulators.
Which type of coverage you choose will depend on whether you’re more concerned about protecting your own business from direct losses, defending against claims from others, or both.
Invincibility: with Cyber Insurance, everything will be ok?
Even with cyber insurance, you can’t always rest on your laurels and expect everything to be ok.
In 2023, 160-year-old transport firm KNP Logistics suffered a devastating ransomware attack, with cyber criminals demanding several million pounds. The company had recently taken out a £1 million cyber insurance policy, but coverage fell far short of the total losses.4
The insurer released an initial £250,000 for immediate response, with further payments dependent on documentation that was inaccessible due to encrypted or destroyed financial records.
Policy exclusions – covering issues such as pre-existing vulnerabilities and inadequate security measures, meant major losses, including reputational harm, business interruption, and failure to meet lender requirements, went uncovered.
By 2025, the financial strain forced KNP Logistics to close, leaving 700 employees jobless.
While it is important to have cyber insurance in place, it’s not a case of getting insurance and assuming that is all you need to do.
ERGOS Expertise: Technical, Trusted, Independent
At Ergos Technologies Limited, our approach is anchored in technical excellence, independence, and trust. We help SMEs understand both the preventive side (security posture, Cyber Essentials, AI automation) and the recovery side (insurance coverage, incident simulation, real-world coordination).
We work with clients to help them take these practical steps:
- Assess your risks – identify likely threats (phishing, vendor compromise, AI misuses).
- Implement Cyber Essentials – build measurable security baseline.
- Layer in technical controls – think beyond basics: leverage automation, AI detection where it is cost-effective.
- Document and train – deploy incident plans, test response, train staff.
- Engage brokers intelligently – understand policy limits, exclusions, and support services.
Conclusion: Cyber Insurance as part of a resilience strategy
Cyber insurance is not a silver bullet as we have seen, but it is a critical element of a resilience framework for UK SMEs in 2025. When paired with solid security hygiene (especially Cyber Essentials), it supports fast recovery, protects your reputation, and averts debilitating financial impacts.
As threats evolve, now including AI-powered phishing, shadow AI risks, and supply chain exploits, the combination of prevention, planning, and financial safety is no longer optional, but essential.
Secure your business’s future with confidence and find out more about how ERGOS can help here.
1 – Cyber insurance is crucial to your business | MoneyWeek
2 – M&S cyber insurance payout to be worth up to £100mn
3 – A small business hit by ransomware attack – how Hiscox handled the claim – Hiscox Business Blog
4 – Weak password allowed hackers to sink a 158-year-old company – BBC News