It’s not that surprising that more distributors are providing their customers with a new kind of warranty, a cybersecurity warranty. Security breaches affecting data can impact a company every two seconds and will cost businesses $265 billion by 2031. These warranties help reduce the financial security risks posed by cyberattacks and shift the responsibility to the provider. These warranties are usually employed together with cybersecurity insurance to fill the gaps that insurance policies leave.

Warranties can be a great tool for transferring financial risk, but they aren’t an alternative to a comprehensive risk management system. A cybersecurity warranty can be substituted for cyberinsurance. However both should be utilized in conjunction to decrease the risk.

It is crucial to limit the liabilities that aren’t covered in warrants when you negotiate one in an M&A deal. For instance, regulatory proceedings usually have long limitations period that may be excluded from indemnification under a warranty.

Manufacturers should also make sure that their warranty covers the intended use for products. For instance machines that analyze walking signatures could be warrantied for a variety of uses such as helping people choose the appropriate shoes or diagnosing chronic pain. But if the tool is used to monitor and intercept communications, a warranty disclaimer can prevent the makers from recognizing any responsibility.

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