Tailored for takeoff: Addressing airline cyber cover considerations

Airline cyber cover considerations: specialist cyber endorsements for passenger disruption, loyalty fraud, infrastructure, network, and cargo risks.

The case for specialist cyber endorsements

On July 19, 2024, a defective CrowdStrike software update grounded fleets across the globe, resulting in significant compensation and operational expenses for the airline industry.

Cyber insurance paid losses in the aviation market, but the event brought into focus a question that had existed long before it:

Airlines operate across dozens of jurisdictions, depend on hundreds of third-party suppliers, manage loyalty ecosystems trusted by tens of millions of customers, and carry life-critical cargo on behalf of third parties. When their systems fail, the consequences reach far beyond the server room — spilling onto runways, into departure halls, onto cargo pallets, and into the hands of regulators.

Passenger disruption costs

The most immediate cost of any cyber-driven outage begins accruing within hours. Under Air Passengers Rights Regulation 2004 (EU Regulation EC 261/2004) and equivalent frameworks worldwide, a delay of more than three hours triggers automatic statutory obligations, including reimbursements for hotels, meals, rebooking, and cash payments of up to €600 per passenger.

A civil aviation passenger compensation and fines endorsement can bring these costs, along with regulatory fines and direct mitigation expenses, within the scope of a covered business interruption loss. Where available, it can also treat civil aviation authorities worldwide as regulators under the endorsement.

Proving passenger disruption costs often takes time while the airline's cash obligations accrue daily. An agreed value business interruption endorsement can assist in addressing delays commonly associated with proving a loss amount by establishing a pre-agreed advance payment schedule tied to the number of flights canceled, delayed, or denied.

Loyalty and fraud losses

Loyalty programmes are often among the least visible yet material cyber exposures in aviation. A breach of a frequent flyer database strikes at the foundation of a carrier's most valuable customer relationships. Additionally, a communications team's instinctive response — distributing mileage credits, vouchers, and complimentary memberships as goodwill gestures — can also generate real financial costs that a traditional cyber insurance policy may not contemplate. Where available, a loyalty card reissuance costs and goodwill gesture endorsement can address both the reissuance of loyalty cards and customer-facing gestures.

A separate, but related, threat is the fraudulent redemption of miles through credential stuffing and account takeover attacks. Common policy forms do not generally address this category of loss. A frequent flyer fraud endorsement can address the costs of reimbursing fraudulent programme redemptions, whether through the carrier's own channels or a partner airline.

Infrastructure and supplier exclusions

Aviation infrastructure is uniquely non-negotiable. Standard cyber policies can carry infrastructure exclusions that limit aggregation exposure. For airlines, such exclusions can serve to limit coverage for some key risks. An infrastructure exclusion amendatory endorsement can limit the scope of a common telecommunications exclusion to add back in coverage for loss of air traffic control services.

A critical supplier amendatory endorsement addresses a related consideration: many operationally critical entities, such as ground handlers under airport contracts and government-run border force services, may not be within the definition of critical supplier. An endorsement may address that definition limitation, creating a distinction between an insurable supply chain dependency and a systemic infrastructure risk.

Definitions and carve-backs

Two additional endorsements address the scope of what is insured. Cyber policies typically respond only to events on the insured's defined network. An airline’s digital estate will commonly span avionics, navigation, engine management, flight simulators, boarding systems, and in-flight entertainment. A network definition amendatory endorsement can specify each of those systems.

An air cargo spoilage endorsement addresses a different boundary: standard cyber policies will often exclude property damage, yet cyber-driven delays to temperature-sensitive freight, including pharmaceuticals, biologics, and perishable foodstuffs, can produce categories of physical damage loss. This endorsement creates an exception, enabling the cyber programme to respond to third-party spoilage claims.

Together, these eight endorsements have the ability to address many common airline exposures that a standard cyber policy may not.