When hackers turned supermarket freezers into ovens across France, raising temperatures to 50 degrees Celsius and spoiling millions of euros worth of food, the affected retailers faced a second shock: their cyber insurance wouldn't cover it. This incident raises a crucial question dividing the insurance market: Should cyber policies explicitly include physical loss coverage, or does that blur the line between cyber risk and traditional property insurance?
The Question at Hand
Cyber insurance has traditionally covered digital losses like breach response costs and regulatory fines. However, physical damage from a cyberattack occupies an uncertain space. The attack vector is digital, but the loss is tangible: spoiled inventory, damaged equipment, contaminated products. Traditional property policies weren't designed with cyber triggers in mind, and Stand-Alone Cyber Policies typically exclude physical loss. So, who pays when the attack crosses that boundary?
This is not just theoretical. Between 2020 and 2025, cyberattacks in France, Germany, Italy, and Spain cost over €300 billion in economic losses. As more operational technology becomes internet-connected, the potential for cyber-triggered physical damage grows. The French supermarket attack, which affected cooling units using software from Danfoss, Copeland, and Dixell, shows how vulnerable these systems are when outdated.
The Case for Keeping Cyber and Physical Coverage Separate
Insurers who resist bundling physical loss into cyber policies argue that these are different risk classes with different underwriting models. Property insurance prices physical asset risk using decades of data on fires, floods, and equipment failure. Cyber insurance prices digital risk using evolving threat intelligence and security controls. Mixing them creates pricing opacity and could destabilize both markets.
There's also the concern of moral hazard. If your cyber policy covers physical losses, what's your incentive to maintain operational technology properly? The French incident highlighted this problem: many affected appliances were using outdated software or had reached end of life. Should an insurer pay for losses when basic maintenance wasn't performed?
Underwriting becomes more complex when physical loss is included. A cyber underwriter evaluates your security posture through an Underwriting Questionnaire and Cyber Maturity Assessment, while a property underwriter evaluates building codes and equipment age. Combining these requires new expertise and risk models that most carriers haven't developed yet.
The war exclusion issue adds another layer. If a state actor is behind an attack, traditional War Exclusion clauses could void coverage entirely. Physical losses from cyber events introduce complications around Hostile Act Exclusions and State-Backed Cyber-Attack Exclusions that the industry is still working through.
The Case for Explicit Physical Loss Coverage
The counterargument is that the distinction between digital and physical loss is becoming artificial. When your manufacturing line stops because of ransomware, that's Business Interruption Coverage. When your refrigeration fails because of a cyberattack, why isn't that also cyber? The attack vector is identical; the only difference is which asset failed.
Companies in certain sectors face existential risk from cyber-triggered physical losses. Pharmaceutical manufacturers with temperature-sensitive biologics, food processors with perishable inventory, and data centers with cooling-dependent equipment can't afford coverage gaps. David Molony, head of cyber and financial sponsors at Aon, recommends specific cover for perishable goods that need tightly controlled conditions, particularly in retail and pharmaceuticals. Aon has recently arranged high-value policies in the London market with perishable stock coverage included.
The operational reality is that companies are digitizing their operational technology without fully understanding the insurance implications. Internet of Things deployments happen at the business unit level, often without risk management involvement. By the time you discover your industrial control systems are internet-connected, you may have already created an uninsured exposure. Explicit physical loss coverage in cyber policies closes that gap proactively.
There's also the claims experience to consider. When a cyber incident causes physical damage, you shouldn't need to file claims against multiple policies and hope they don't both deny coverage. A single policy with clear physical loss provisions eliminates that coordination problem.
Where Practitioners Actually Land
In practice, the market is fragmenting. Energy, marine cargo, and defense sectors already purchase cyber policies with physical damage coverage because their risk profiles demand it. Large retailers are increasingly seeking similar coverage, especially after high-profile incidents in Britain and France. But most organizations still carry separate cyber and property policies with potential gaps between them.
Underwriters are taking different approaches. Paul Gooch, deputy departmental head at Tokio Marine Kiln, notes that outdated software isn't usually grounds to reject a claim outright, but the details matter. Emma Pleut, head of cyber for France at WTW, points out that companies typically declare their software update policies when taking out cyber coverage, committing to critical updates within specific timeframes. Your claim outcome may hinge on whether you followed your own declared procedures.
Premium pressure is real. Sydonie Williams, head of international cyber risks at Beazley, confirmed that European retailers could face higher insurance prices following recent cyberattacks. Gooch expects greater focus on insurance products that specifically address physical losses from attacks, calling the French refrigeration incident "a wake-up call to those who underestimate the potential physical consequences of cyber incidents."
Our Take
Physical loss coverage should be explicitly addressed in your cyber policy, either included with clear sublimits or excluded with clear alternative coverage identified. The gap is too dangerous to leave unresolved.
That doesn't mean every organization needs full physical loss coverage in their cyber policy. If you have minimal operational technology exposure, traditional property coverage with a cyber endorsement may suffice. But if you operate cold storage, manufacturing lines, building management systems, or any environment where a cyber event could cause tangible physical damage, you need explicit coverage one way or another.
The tradeoff is price and complexity. Policies with physical loss coverage will cost more and require more detailed underwriting. You'll need to document your operational technology inventory, patch management procedures, and asset lifecycle policies. But that documentation discipline is valuable regardless of insurance; it's basic operational technology hygiene.
Don't assume your current coverage handles this. Review your Stand-Alone Cyber Policy and property policy with your broker specifically for cyber-triggered physical loss scenarios. If there's a gap, decide whether to close it through cyber policy expansion, a specialized endorsement, or a separate operational technology risk policy. The one option you don't have is ignoring it and hoping the carriers sort it out during a claim.
