Cyber Property Damage: Bridging the Coverage Gap in a Digitally Connected World
Written by Lacy Rex, Unison Risk Advisors
As organizations accelerate their digital transformation journeys, they face a new breed of risks—ones that blur the boundaries between the virtual and physical realms. Among the most pressing and often overlooked threats is cyber-induced property damage. This emerging risk challenges traditional insurance models and reveals a critical gap in coverage that many businesses are unaware of.
Cyber property damage refers to physical harm or loss caused by a cyber event. This can include damage to machinery, infrastructure, or inventory resulting from breaches in:
As environments become increasingly interconnected, the potential for cyber incidents to trigger real-world consequences grows exponentially.
Examples of cyber-physical risk include situations where a food manufacturer’s systems are compromised, allowing attackers to shut down refrigeration controls and cause spoilage of perishable goods. Another example is an automotive plant experiencing a cyberattack that disrupts robotic assembly lines, halting production and damaging equipment. These are not theoretical scenarios—they represent real risks that industries face today.
In 2014, a steel mill in Germany was targeted by cybercriminals using spear-phishing emails to infiltrate its network. Once inside, they disrupted the blast furnace’s shutdown process, causing extensive physical damage and production outages.
Reported by the German Federal Office for Information Security, this incident marked a turning point in understanding how cyberattacks can cause tangible, physical harm—and raised serious questions about insurance coverage.
Many organizations assume their commercial property and cyber liability policies will work together to cover such incidents. Unfortunately, that’s rarely the case.
This leaves a dangerous gap: when a cyberattack causes physical damage or business interruption, neither policy may respond.
To address this gap, insurers have developed CZ Coverage—a hybrid policy that combines elements of property and cyber insurance. CZ Coverage is specifically designed to respond to cyber-triggered physical damage, business interruption, and extra expense. It fills the void left by cyber exclusions in property policies and is especially relevant for industries reliant on OT and IoT systems, including manufacturing, energy and utilities, transportation and logistics, healthcare, and construction and engineering.
As cyber threats evolve, so must our approach to risk management. Organizations need to understand the limitations of their current insurance programs, evaluate their exposure to cyber-physical risks, and explore tailored solutions like CZ Coverage.