It’s not unexpected that more distributors are providing their customers with a new type of warranty, called a cybersecurity warranty. Security breaches to data can impact a company every two seconds, and will cost businesses $265 billion by 2031. These warranties lower the economic risks associated with cyberattacks, and shift the burden to the company providing the service. They’re often a complement to cybersecurity insurance and assist in filling in the gaps where insurance might not provide coverage for a reduction.
Warranties are a great way to data safety warranty transfer financial risk, but they’re not a replacement for a comprehensive risk-management solution. A cybersecurity warranty can be used in lieu for cyberinsurance. However both should be used together to reduce the risk.
When negotiating a guarantee in an M&A transaction, it’s crucial to know and limit the liabilities that are not covered by the warrant. For instance legal proceedings for regulatory violations typically have lengthy limitation periods that can exclude indemnification under a warranty.
Manufacturers should also make sure that their warranties cover how products are actually intended to be used. For instance machines that analyze walking signatures can be warranted for a variety of purposes, like helping people identify the right shoes or diagnosing chronic pain. But if the tool is being used to monitor or intercept communications or communications, a warranty exclusion can stop manufacturers from acknowledging any liability.