Most business owners assume cyber insurance will step in when something goes wrong.
A breach hits, systems freeze, and staff cannot log in. You file the claim expecting help, only to find that sometimes it never comes.
Across North America, insurers are tightening requirements and looking more closely at how businesses actually run their systems, especially around AI use, data handling, and security controls. When what is written on an application does not match what is happening day to day, claims can be denied for something called “material misrepresentation.”
That phrase sounds legal and heavy, but the meaning is simple. You said one thing. Reality showed another. For growing SMBs, that gap is becoming one of the biggest risks tied to cyber insurance.
What “Material Misrepresentation” Means
When you apply for cyber insurance, you answer a long list of technical questions about controls such as multi-factor authentication, endpoint protection, backups, patching, access permissions, approved software, and the AI tools staff are allowed to use.
Most owners answer honestly based on what they believe is in place. Trouble starts when technology quietly drifts inside a busy organization.
- Policies exist but are not followed everywhere
- Security tools were installed years ago and never revisited
- Departments add apps without approval
After an incident, insurers dig into the details. If they find gaps between the application and daily operations, they may argue that the risk was misrepresented and refuse the claim.
Shadow IT and AI Tools Are Getting More Attention
One of the fastest growing areas insurers now examine is Shadow IT, which happens when employees rely on tools outside what the business approved. This can include:
- Personal file-sharing apps
- Free password managers
- Remote access software
- Public AI chat platforms
- Browser extensions that touch company data
Most people are not trying to create problems. They are just trying to work faster. From an insurer’s point of view, those tools move data into places the business cannot easily see, skip logging, and introduce exposure that was never disclosed.
AI tools are under closer review during 2026 renewals. Underwriters are asking which platforms staff can use, what data may be uploaded, who reviews activity, whether client information is involved, and how usage is tracked. When leadership does not know what is happening on the ground, that is where risk begins to grow.
Why Insurers Are Pressing Harder
Cyber claims often include:
- Ransom payments
- Downtime
- Legal fees
- Investigations
- Data recovery
Because of that, carriers are raising premiums, narrowing coverage, requiring audits, and asking for proof rather than promises.
For SMBs in legal, accounting, healthcare, manufacturing, or finance, this pressure is even stronger. These businesses hold sensitive information and depend on systems staying online.
Insurers are no longer satisfied with hearing that a company “has security.” They want to see documentation, logs, training records, incident plans, vendor oversight, and clear AI policies.
The Gap That Causes the Most Trouble
The biggest risk is not a company that ignores security. It is a company that believes everything is fine.
Partners sign applications assuming MFA is everywhere, backups work, staff follow the rules, devices are managed, and software is approved. Unless someone checks those assumptions regularly, they start to slide.
- New hires bring habits from past jobs
- Teams adopt new platforms
- Old systems stick around
- Policies get forgotten
That slow change is exactly what insurers are trying to catch.
What You Should Review Before Renewal
If your policy renews in the near future, now is the time to take a close look.
Ask yourself:
- Does your insurance application still match how your systems actually run today?
- Are all users and administrators protected by multi-factor authentication?
- What software and AI tools are active in your environment right now?
- Have backups been tested recently?
- Do employees know which tools they are allowed to use?
- Could you provide proof of these controls if an insurer asked tomorrow?
If any of those questions give you pause, that is worth paying attention to.
How Empyrion Helps You Prepare for Renewal
At Empyrion, we help business owners make sure what insurers ask for matches what is actually happening inside their business. That often includes security reviews, policy checks, Shadow IT discovery, backup testing, endpoint audits, and renewal preparation.
Cyber insurance only works when what is written on paper reflects reality.
If you are unsure those two things line up today, we are always happy to talk it through and help you decide what is worth reviewing before renewal.
