Cyber-physical asset failure is a risk few boards talk about clearly, but many operations live with daily. Insurance products for cyber physical asset failure are emerging to bridge the gap between IT cyber insurance and traditional property or equipment cover. In my experience, organizations often misunderstand what is covered — and that gap can be costly. This article breaks down policy types, common exclusions, practical examples, and steps you can take right now to reduce exposure and buy the right protection.
What is a cyber-physical asset and why failure matters
Cyber-physical systems connect computing and physical processes: think assembly-line robots, industrial control systems (ICS), building management, or medical devices. Failure here isn’t just data loss — it’s physical downtime, safety risk, and potentially large recovery costs.
For background on the concept, see the Cyber-physical system entry on Wikipedia.
Search intent recap: who reads this and why
This is for risk managers, operations leads, CIOs, and insurers wanting a practical map to coverage. You’re probably researching cyber insurance, OT resilience, or how insurance handles asset failure and business interruption.
Core insurance products that cover cyber-physical asset failure
Policies vary by insurer. Below are the main product families you’ll encounter.
1. Cyber insurance (with physical damage and BI extensions)
Traditional cyber policies cover data breaches and extortion. Increasingly, underwriters offer endorsements that respond to physical losses and operational interruptions caused by a cyber event. But watch limits and wording — many policies carve out some OT scenarios.
2. Property and equipment insurance
Classic property insurers cover physical damage from named perils. But cyber-caused physical damage can be excluded unless specifically added. That gap is often where risk sits.
3. Contingent business interruption and supply chain coverage
These products respond when a third-party failure (like a supplier’s ICS outage) causes your losses. For connected industrial supply chains, this can be vital.
4. Manufacturers’ and product liability insurance
If a device you produced fails due to a software vulnerability and harms users, product liability can apply — provided the policy covers software-related defects.
How policies differ — a comparison table
| Policy Type | Typical Focus | Cyber-Physical Strengths | Common Gaps |
|---|---|---|---|
| Cyber Insurance | Data, extortion, D&O | Extortion, forensic costs, BI from IT outages | OT/ICS exclusions, physical damage |
| Property/Equipment | Physical loss, repair | Equipment replacement, repair costs | Cyber triggers often excluded |
| Contingent BI | Third-party disruptions | Supply chain BI from supplier outages | Complex sublimits, time element limits |
Key policy terms and pitfalls to watch
- Trigger wording: Does the policy require a physical trigger, a cyber event, or either?
- System definitions: How do they define OT, ICS, SCADA, or IoT devices?
- Exclusions: Look for “electronic data” or “software failure” carve-outs that can negate coverage.
- Aggregate limits: Shared limits across cyber and property claims can quickly exhaust coverage.
- Waiting periods and hours clauses: These determine when BI payments begin.
Real-world examples — what I’ve seen happen
Example 1: A manufacturing plant hit by malware causing robotic arms to stop. Production stalled for 48 hours. The company had cyber coverage but the insurer disputed physical damage intent. Settlement required negotiation and a costly legal review.
Example 2: A water utility’s SCADA outage (not from malware but due to a faulty patch) caused service interruptions. Property insurers refused coverage citing a software exclusion; ultimately a blended coverage approach and vendor warranty claims recovered part of the loss.
How insurers price these risks
Underwriters look at three things: exposure (how many assets are connected), controls (segmentation, monitoring, patching), and history (loss runs). Proof of OT hygiene often reduces premiums or expands available limits.
For detailed operational guidance on industrial control security, consult NIST Special Publication 800-82.
Risk reduction: what reduces premiums and improves coverage
- Network segmentation between IT and OT
- Up-to-date asset inventories (including IoT)
- Regular ICS/OT penetration testing and tabletop exercises
- Vendor SLAs and third-party risk management
- Business continuity plans and disaster recovery playbooks
Top tip: Insurers reward measurable controls. Don’t just say you have segmentation — demonstrate it with diagrams, logs, and test results.
Choosing the right product mix
A blended approach often wins:
- Primary cyber policy with an OT endorsement
- Property/equipment coverage with a cyber-trigger endorsement
- Contingent BI and supplier interruption coverage
Work with brokers who understand both cyber and industrial risks; many retail brokers still think only in IT terms. From what I’ve seen, specialist brokers find better wording for OT scenarios.
Negotiating policy language — practical clauses to request
- Affirmative cyber-physical trigger: explicit coverage when a cyber event causes physical damage
- Named OT systems included in the policy definitions
- No automatic exclusion for “software failure” without nuanced language
- Separate sublimits for equipment repair vs. BI
Regulatory and industry context
Regulators are paying attention to OT risks. For example, national cyber directives and guidance increasingly require reporting and resilience for critical infrastructure. Tracking those developments helps shape insurer appetite and policy forms. For updates and authoritative reporting, see coverage in major outlets like Forbes’ coverage of cyber insurance for IoT and industrial systems.
Checklist for buying insurance for cyber-physical asset failure
- Inventory OT/IoT assets and map dependencies.
- Document controls: segmentation, backups, patch cadence.
- Request sample policy wordings and compare triggers/exclusions.
- Ask for endorsements for physical damage and BI caused by cyber events.
- Negotiate clear definitions for OT, ICS, and equipment.
- Run tabletop claim simulations with your broker and insurer.
Common objections and how to counter them
“Insurers won’t cover OT”: Not always true. Show controls and risk reduction steps. “It’s too expensive”: Sometimes a layered approach lowers total cost by reducing sublimits. “We can’t prove loss causation”: Improve logging and incident response — that evidence matters.
Practical next steps
If you manage OT or industrial assets, start with three actions: get a full asset inventory, run a gap assessment against NIST guidance, and schedule a policy review with a specialist broker. Even small improvements — like better logging on a PLC — make a difference.
Further reading and resources
For broader context on cyber-physical systems and governance, see the Wikipedia page on cyber-physical systems, and for ICS-specific security practices consult the NIST SP 800-82 guidance. For industry pricing and market trends, refer to analysis such as the Forbes article on cyber insurance for IoT and industrial systems.
Final thoughts
Buying insurance for cyber-physical asset failure isn’t plug-and-play. It takes effort, negotiation, and proof of controls. But with the right policy mix and operational hygiene, you can transfer meaningful parts of the risk — and sleep a little better. In my experience, organizations that treat OT risk like a first-class insurance topic see faster claims resolutions and fewer surprises.
Frequently Asked Questions
Coverage varies, but typically includes forensic and recovery costs, business interruption, extortion, and sometimes physical repair or replacement if endorsed. Always check policy triggers and exclusions.
Not always. Many cyber policies exclude physical-damage or OT-specific scenarios unless you buy an endorsement or tailored wording that explicitly includes ICS/OT incidents.
Improve segmentation, maintain an accurate asset inventory, run regular OT tests, and document controls. Insurers reward demonstrable risk-reduction measures.
Usually both. Property covers equipment repair and replacement; cyber covers incident response and extortion. Endorsements and clear wording are essential to bridge gaps.
Conduct an asset inventory, perform a gap assessment against frameworks like NIST SP 800-82, and prepare evidence of segmentation and logging to present to brokers and underwriters.