How to Cover for Downtime Losses in 2022

From our Partners
4 Min read

The World is Cloudbound. Where’s the Catch?

Q3 2021 earnings were tremendous for the three largest public cloud vendors – AWS, Azure and GCP. Revenue from their cloud operations grew 37% YoY, with the next ten largest cloud providers hitting the 28% YoY mark.

The first cloud services were launched over a decade ago. In 2008, the entire public cloud services market was worth around $5B, according to Statista. By the end of 2021, the net value is expected to reach an astounding $445B. With such a sweeping effect on businesses, it’s no wonder some processes are lagging behind. For example, risk management currently does not match the new infrastructural reality.

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Cloud Environments are a Two-Faced Coin.

The advantages for businesses migrating to the public cloud are tremendous. They save money, they no longer need to purchase, house and maintain expensive, sophisticated hardware. And mostly, the strategy promotes efficiency, innovation and scale.

The downside is that data and services are now managed by someone else; you’re entirely dependent on the internet for access. And while Amazon, Microsoft and Google have endless resources and an unmatched expertise in safeguarding data and processes, if the system goes down there’s little you can do.

As more businesses jump on the bandwagon, they need to be aware of this risk, and update their contingency plans accordingly.

Downtime is Riskier than You Think.

The average business can expect a downtime cost of $5,600 per minute. For 44% of enterprises, an hour of downtime costs more than $1 million. For businesses that rely on the cloud to sell products and services, outages are particularly painful. A crash will send them scrambling to contend with customer churn and a tarnished brand reputation.

Businesses that rely on the cloud for day-to-day operations have plenty to worry about as well. Employees may lose access to mission-critical tools like the website, email server, the CRM, and support systems. Developers can lose access to their tech stack. In essence, downtime can bring the entire workplace to a screeching halt.

Multi-vendor strategies (multi-cloud, multi-CDN, managed DNS etc.) are a recommended practice to avoid many outages. That’s not some luxury of deep-pocketed enterprises: with the right technology partner, it’s accessible to any business, and often results in significant cost reductions of regular operations. To learn more, watch our recent webinar: Stay Out of Outages.

Do Cyber Policies Cover for Your Losses?

Today, cloud downtime risk is often addressed by Cyber policies (even though cloud downtime is rarely a result of malicious attacks) and Error & Omittance policies. Accordingly, the covered damages are those of data loss; Undermined availability is covered to a very limited extent, if at all.

However, even in the unlikely case your downtime falls within a Cyber policy, the coverage is not conducive to the fast rebound needed after the business interruption:

For starters, most policies kick in only after 12 hours of downtime. These policies offer no damages for shorter, equally damaging outage events – which are the majority of events today.

The second problem is that these policies mandate a tedious claims process in which businesses must prove damages in order to collect on the policy. Most claims take anywhere between 6 months and 3 years to be processed and paid for.

Finally, deductibles can easily get to $100K, so financial damages are never paid out in full.

Taking a look at outages over the past several years, very few businesses would qualify for payouts under Cyber and E&O policies. And if any did, they’d be faced with large deductibles, proving damages, and a lengthy, resource-intensive claims process. 

Real Mitigation Begins with Real Risk Assessment

Accurate risk assessment is a prerequisite for any business’ success. It involves identifying and finding ways to overcome any foreseeable obstacles. 

A cloud outage lasting several hours can seriously harm sales, mandate compensation for breached SLAs, or require a diversion of resources to mend brand damage.

Downtime insurance provides coverage for the risks associated with cloud downtime. Coverage is often custom made, to reflect the prevalence of dependency on the public cloud in today’s business world.

  • It suits your business needs
    You determine the coverage amount based on your own assessment of the fallout from cloud failure.
  • It’s easy to understand
    Triggers are clear and set in advance. You won’t need to prove damages if the cloud services and servers denoted in the policy fail. 
  • Payouts are speedy
    With some insurers promising reimbursement within 15 business days, you can use the funds to help resume operations and mend damages fast.

Don’t Panic. Just Prepare.

Business continuity is critical to every business, and cloud downtime is a threat to seamless operations. Still, 3rd party cloud failure should not be perceived as threatening or crippling. Like all risk factors, it must be acknowledged, accounted for, and properly managed.

There are many measures a business can take to manage this particular risk.
The first: bolster data integrity and accessibility through server configurations, like redundancy across regions.
The second: understand that downtime happens, quantify the fallout, and ensure you’re equipped to manage and overcome it in the rare event that you’re disconnected from customers, data and services.

Contact us for personalized consultancy on mitigating your downtime risk.

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