The three types of cyber warranties and associated risks

Cyber warranties have been a hot topic in the MSP industry the last two years. Multiple companies have launched new products, claiming they are “fixing” insurance. However, underlaying these warranties are often more restrictive language and higher risk for the MSP when selling them.

One frequent criticism by the Beltex team is that warranty marketing often promotes issues with cyber insurance that is inaccurate, and even worse, is often a complain that could be made about the warranty itself.

Embedded Warranties

These are the simplest type, and are included with a product. SentinelOne is the most prominent example of an embedded warranty, and impressively they place the language publicly on their website. These warranties often have a very (very) specific set of requirements, and limits on how they pay out (example: 4999 or less endpoints for S1 limits the payout to $100k maximum.) These warranties should be considered a “cherry on top” of your risk management strategy.

Financial Warranties

These warranties are frequently tied to services provided but are not product specific. Beltex has partnered with Spectra to offer this for our MSP partners. A financial warranty ties a simple payout to the failure of specific services. These warranties also have very specific requirements like all warranties, but have a simplified claims process that minimizes or eliminates the potential for conflict with actual insurance. Liability for the MSP is extremely low due to the simplicity of a financial warranty paying out (or not.)

Service Warranties

Service warranties are a type of micro insurance policy, often providing small limits such as $100k or $500k. Despite claims to the contrary, the warranty operates like a insurance policy, even being backed by a proper reinsurance policy. The claim service provides the same services that a full insurance policy does: financial reimbursement, forensics, legal and more. Beltex does not offer or partner with service warranty providers due to the high risk of conflict between a full insurance policy claim, and added liability for the MSP selling the warranty.

Beware the “no liability” claim by warranty providers. By selling a product to a customer, an MSP inherently carries liability. If selling service warranties, an MSP should check with their professional liability/errors & omissions carriers to ensure that any issues by the warranty will be covered by the MSP’s policy.

When does Beltex recommend a cyber warranty?

Very niche cases. The average SMB cyber insurance policy has a deductible of $5000, and many popular cyber warranties cost $4000+/year, so the “deductible coverage” math does not usually work out well for the client. As a policy deductible/retention goes up, a warranty may be more appealing. An MSP should have a licensed insurance agent and/or attorney review the warranty and policy language to ensure that both the MSP and customer are very aware of the warranty restrictions.

In some cases, a warranty may be more affordable than insurance, however the coverage is reduced, and an MSP is exposing themselves to major liability by selling a warranty when a client should be evaluating proper insurance.