Rethinking Cyber Insurance: Policy Design and Structure Shape Protection for Mid-Market Healthcare Providers — DeshCap - June 4, 2026
A Conversation with Fred Barnachawy, Founder and Managing Director of DeshCap
Cyber insurance is becoming a standard component of risk management across the healthcare sector, particularly among mid-market providers facing increased exposure to ransomware, data breaches, and operational disruption. Yet as adoption grows, the effectiveness of that coverage is increasingly tied not to whether policies are purchased, but to how they are designed, structured, and aligned with operational risk.
In a recent BizTechReports executive vidcast interview, Fred Barnachawy, founder and managing director of DeshCap, described a widening gap between the purchase of cyber insurance and the understanding required to ensure that coverage performs in practice. While awareness of cyber threats has improved, many organizations continue to approach insurance as a compliance requirement rather than as a financial instrument that must be engineered to match real-world exposure.
That distinction has significant implications. Policy language, definitions, and conditions ultimately determine whether claims are paid. Without aligning those elements to operational realities, organizations may find themselves underinsured at the moment of loss, despite having coverage in place.
Here is what he had to say:
BTR: How are mid-market healthcare providers thinking about cyber risk and insurance today?
Barnachawy: We’ve seen a higher level of awareness from management over the past several years, and that shift is meaningful. CFOs, COOs, and in some cases even clinical leadership are getting involved in discussions around cyber risk and insurance, which reflects how central these issues have become to the business. There is a growing recognition that cyber risk is not just a technical issue but a financial and operational one as well. However, the understanding of how policies actually work in practice is still very narrow. Most executives understand that insurance exists and that it can be purchased at a reasonable cost, but they don’t fully understand how coverage is triggered, how claims are evaluated, or how policies perform at the time of loss. That gap between awareness and practical understanding is where a lot of the exposure sits.
BTR: What is driving that gap between awareness and understanding?
Barnachawy: A lot of organizations procure cyber insurance just to check the box. They are meeting contractual or regulatory requirements, often driven by legal or compliance teams, but they are not necessarily aligning the policy with their actual operational risks. In many cases, the requirement is simply to carry coverage, not to ensure that it is structured correctly or that it will respond to the most likely loss scenarios. At the same time, they tend to rely on a single broker relationship that has been in place for years. That relationship becomes the primary source of information, which limits their visibility into how coverage can be structured differently across the market. It also reduces competitive pressure, which can impact both pricing and terms. Over time, that reinforces a narrow understanding and prevents organizations from fully exploring how insurance can be engineered to match their risk profile.
BTR: How does this compare with larger healthcare systems?
Barnachawy: Larger organizations typically have in-house insurance expertise and dedicated risk management teams that focus specifically on these issues. They have professionals who understand policy language, coverage structure, and the financial implications of different scenarios. They can model exposure, evaluate different layers of coverage, and integrate insurance into broader financial and operational planning. Mid-market providers don’t usually have that level of internal capability, so they depend on brokers for both access to the market and guidance on how policies should be structured. That creates an information imbalance where key decisions are being made without the same level of analytical support. Even when management is sophisticated, they may not have the specialized tools or experience needed to fully evaluate how insurance aligns with their risk.
BTR: Where do you see the biggest operational gaps in how cyber insurance is managed?
Barnachawy: The biggest issue is that policy wording is rarely read from an operational standpoint. Not by management, not by brokers, and often not even by underwriters. The language is typically written by external counsel and interpreted from a legal perspective, which is important, but it doesn’t always translate into how a healthcare provider actually operates day to day. There is a disconnect between the legal structure of the policy and the operational reality of the organization. That means key definitions, exclusions, and conditions may not align with how systems are configured, how data flows, or how controls are implemented. Without that alignment, the policy may not respond in the way management expects when an incident occurs.
BTR: What are the implications of that disconnect?
Barnachawy: You can end up in a situation where an organization believes it is covered, but it hasn’t met the conditions required for a claim to be paid. For example, something as basic as multifactor authentication might not be implemented consistently across all systems, even though it is assumed to be in place. Or there may be gaps in how controls are documented or enforced. These kinds of issues can have a direct impact on whether the policy responds. The organization thinks it has transferred risk, but in reality, it may still be exposed because the operational controls and the policy requirements are not aligned. That is where expectations break down, and that is often when disputes arise between insureds and insurers.
BTR: Are organizations revisiting policies often enough?
Barnachawy: No, most organizations wait until renewal to revisit their policies, and that is a missed opportunity. Policies are not static documents, and they can be updated mid-term, but many management teams are not aware of that flexibility. You can adjust wording, renegotiate certain provisions, and better align the policy with your evolving operations during the policy period. Instead, many organizations treat insurance as a once-a-year exercise, which limits their ability to improve coverage as their risk profile changes. Given how quickly cyber risk evolves, that lack of ongoing engagement can create additional exposure.
BTR: How does this translate into financial outcomes when incidents occur?
Barnachawy: We estimate that the payout ratio on large losses is less than 25 percent, which is a significant gap between expectation and reality. So if you have a $10 million policy and experience a $10 million loss, you may end up receiving less than $2.5 million. For organizations that are relying on insurance as a primary financial safeguard, that shortfall can have a major impact on their balance sheet and overall financial stability. It highlights the difference between having coverage on paper and having coverage that actually performs under real-world conditions. That distinction is often not fully appreciated until a claim is filed and tested.
BTR: Why is the gap so large?
Barnachawy: It comes down to how the policy is structured, the exclusions embedded in the wording, and whether the organization has met the required conditions at the time of the incident. There are many publicly available cases where insureds and insurers are in litigation over non-payment, which reflects how common these issues are. Insurance contract breaches are among the more frequent types of disputes. The underlying issue is that coverage is often not aligned with operational reality. Organizations may believe they are protected against certain risks, but the policy may define those risks differently or impose conditions that are difficult to meet in practice.
BTR: Does that mean cyber insurance is ineffective?
Barnachawy: Not at all. When it is structured properly, cyber insurance can be a very effective way to hedge risk. In fact, for mid-market organizations, it can often be more cost-effective than trying to build out a full suite of technical controls internally. The key issue is alignment. If the policy is aligned with the organization’s operational risks, controls, and exposure, it can provide meaningful financial protection. If it is not aligned, then the organization may still be exposed despite having coverage. So the effectiveness of insurance depends on how it is designed and structured, not just whether it is purchased.
BTR: What role does technology play in improving how organizations approach cyber insurance?
Barnachawy: Technology, especially AI and advanced analytics, can play a significant role in helping organizations better understand their risks and how policies are structured. We use AI-assisted tools to support that process, and we encourage management teams to adopt similar approaches. These tools can help break down complex policy language, quantify exposure, and provide a clearer view of how coverage aligns with operational risk. They can also surface gaps that might not be obvious through manual review. That kind of visibility is critical for making informed decisions and improving overall risk management.
BTR: Where should organizations start?
Barnachawy: A practical starting point is to build a risk register. Identify your top risks, rank them in terms of importance, and determine whether you have controls or insurance coverage in place for each one. It doesn’t need to be overly complex or technical. Even a simple exercise can help organizations begin to understand where the gaps are and what needs to be addressed. From there, they can start asking more informed questions and refining their approach. The key is to create a baseline understanding that can evolve over time as risks change.
BTR: How does that change the conversation?
Barnachawy: It shifts the conversation from simply buying insurance to understanding what is actually covered and how that coverage aligns with the organization’s risk. Instead of focusing only on the declarations page or the premium, management starts asking whether the policy reflects their operational reality and whether it will respond to the types of incidents they are most likely to face. That leads to better questions, more informed discussions with brokers and insurers, and ultimately more effective coverage. It moves the organization from a compliance-driven mindset to a more strategic approach to risk management.
BizTechReports Conclusion:
Cyber insurance is expanding across the healthcare sector as organizations respond to rising digital risk, but Barnachawy’s analysis suggests that coverage alone does not ensure protection. For mid-market providers, the effectiveness of cyber insurance is determined less by the presence of a policy and more by how that policy is designed, structured, and aligned with operational realities.
Organizations that treat insurance as a static, compliance-driven purchase may find themselves exposed when claims are tested. Those that take a more analytical approach—grounded in risk identification, policy alignment, and ongoing management—are more likely to realize the financial protection that cyber insurance is intended to provide.
As adoption continues to grow, the distinction between coverage and protection will increasingly be defined by the quality of policy design.
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