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It’s not that surprising that more distributors are offering their customers a brand new kind of warranty, a cybersecurity warranty. Data security breaches will impact businesses every two seconds and cost businesses $265 billion by 2031. These warranties help reduce the economic risk of cyberattacks and removes by shifting liability to the company that provides them. These warranties are often used together with cybersecurity insurance to fill the gaps that insurance policies leave.
Warranties are a great way to transfer financial risk but they’re not a replacement for a comprehensive risk management solution. A cybersecurity warranty can be substituted for cyberinsurance. However they should both be used together to lower the risk.
When negotiating a warranty in an M&A transaction, it’s crucial to be aware of and limit the liability that are not covered by the warrant. For instance the regulatory offence process is typically have long limitations periods that may not allow the warranty’s indemnification.
Manufacturers must also ensure that their warranties cover how they intend for their products to be used. For instance machine learning tools which analyze walking signals could be warrantied for a range of purposes, like helping people identify the right sneakers or diagnosing chronic pain. However, if the device is being used to monitor and intercept messages the warranty disclaimer could keep the manufacturer from recognizing any liability.