It’s not unexpected that more distributors are offering their customers a brand new kind of warranty, a cybersecurity warranty. Security breaches to data can impact a company every two seconds and will cost businesses $265 billion by 2031. These warranties help reduce the economic risks connected with cyberattacks and removes by shifting liability to the company that provides them. These warranties are usually employed together with cybersecurity insurance to fill in the gaps that insurance policies leave.
Warranties can be a useful tool to transfer financial risk, but they aren’t an alternative to a complete risk management solution. While a cybersecurity guarantee can be used as a substitute for cyberinsurance, they should work together to reduce the risk of a security breach.
It is important to limit the liability that aren’t covered under a warrant when negotiating one in an M&A deal. For instance legal proceedings for regulatory violations typically have lengthy limitations periods that may not allow indemnification under a warranty.
Manufacturers should also make sure that their warranties cover how they are intended to be used. For instance machine learning tools that analyze walking signatures could be warranted for a range of purposes such as data safety warranty helping people choose the right shoes or diagnosing chronic pain. However, if the tool is being used to monitor or intercept communications, a warranty disclaimer can keep the manufacturer from recognizing any liability.
