Managed Service Providers (MSPs) play a mission-critical role in keeping businesses secure, yet they remain top targets for cybercriminals. The financial damage from a cyber event can be devastating—not just for the MSP but also for its clients.
Most MSPs carry Cyber Insurance as part of their Tech E&O coverage, assuming that’s enough protection. But here’s the problem:
✔️ Your policy likely doesn’t extend to your clients.
✔️ If your client suffers a breach, they may look to you for liability.
✔️ If your Master Services Agreement (MSA) isn’t properly structured, you could be held responsible—even if you weren’t at fault.
That’s why forward-thinking MSPs are embedding cyber insurance into their services, ensuring that clients have their own coverage in place.
In this blog, we’ll break down the hidden costs of cyber risk, the dangers of poorly drafted MSAs, and how embedding cyber insurance into your service offerings can protect both your business and your clients.
The Hidden Costs of Cyber Risk for MSPs
Beyond direct breach response costs, MSPs often overlook the long-term financial, legal, and operational fallout of a cyber event.
1. Contractual Liability & Legal Exposure
Many MSPs assume their contracts shield them from liability in a cyber event—but poorly worded MSAs can leave dangerous gaps.
🔴 Example:
An MSP provided security monitoring for a client that suffered a ransomware attack. The MSA was vague on responsibility, and the client claimed the MSP failed to detect the breach. Without clear limitations in the agreement, the MSP was sued for $2.5M in damages.
💡 The Fix:
- Ensure your MSA explicitly defines liability limitations and exclusions for client security incidents.
- Include cyber insurance as part of your managed services, ensuring clients are covered before an incident occurs.
2. Lost Clients & Revenue Due to Breach Fallout
Even if an MSP isn’t legally liable, a cyber event can still damage client trust—leading to churn. Clients who experience downtime, compliance issues, or lost data may switch providers to avoid future risk.
🔴 Example:
An MSP’s client was breached, and their own cyber insurance denied the claim due to missing security controls. The client blamed the MSP, terminated their contract, and posted a negative review online, causing three additional customers to leave.
💡 The Fix:
- Embed cyber insurance into your service stack so that clients are automatically covered, eliminating disputes over liability.
- Proactively educate clients on how cyber insurance and risk management work together to prevent financial loss.
3. Ransomware, Downtime & Unrecoverable Costs
Cyberattacks don’t just create direct financial losses—they create ripple effects that impact long-term revenue, reputation, and operations.
🔴 Example:
An MSP was hit with ransomware, locking down dozens of client environments. Their cyber policy covered some losses, but clients without their own coverage weren’t reimbursed—leading to client disputes and a PR crisis.
💡 The Fix:
- Ensure every client has a cyber policy in place as part of your services, so claims are covered without disputes.
- Clearly define incident response expectations in your MSA, detailing what is and isn’t the MSP’s responsibility.
The MSA Challenge: What’s Missing in Most MSP Contracts?
Your MSA isn’t just a service agreement—it’s a legal shield that protects your MSP from unexpected financial liability. A poorly structured MSA can leave you exposed to:
🚩 1. Indemnification Clauses That Shift Liability to the MSP
Some agreements place broad liability on the MSP, making it responsible for any security issue—even if the MSP wasn’t at fault.
🔎 Fix:
Negotiate fair and specific indemnification language, ensuring clients own their own risk for cyber incidents unless negligence is proven.
🚩 2. Undefined Security Responsibilities
Many MSAs fail to clearly define who is responsible for security configurations, monitoring, and updates—creating room for disputes.
🔎 Fix:
Explicitly outline what security measures you provide and which are the client’s responsibility.
🚩 3. Lack of Cyber Insurance Requirements for Clients
Most MSAs don’t require clients to carry cyber insurance—which can create a huge liability gap in the event of an incident.
🔴 Example:
An MSP suffered an attack that impacted multiple clients, and several had no insurance coverage. Those clients sued the MSP to recoup their losses—resulting in over $500K in legal fees.
🔎 Fix:
- Mandate that all clients carry cyber insurance in your MSA.
- Better yet—embed cyber insurance into your services so clients are covered automatically.
The Future of MSP Cyber Insurance: A Proactive Approach
Leading MSPs are shifting away from reactive cyber risk management and embedding cyber insurance directly into their service stack.
✅ 1. Make Cyber Insurance Part of Your Services
MSPs that embed cyber insurance into their managed services agreements provide a built-in safety net for their clients. This:
✔️ Prevents disputes over liability
✔️ Ensures faster claims payouts for clients
✔️ Reduces legal and compliance exposure for the MSP
✅ 2. Use Cyber Insurance as a Competitive Advantage
By embedding cyber insurance, MSPs can differentiate themselves and win more deals by offering a comprehensive security solution.
✅ 3. Strengthen Your MSA for Risk Mitigation
Ensure your MSA includes:
✔️ Clear indemnification clauses
✔️ Defined security responsibilities
✔️ Cyber insurance requirements for all clients
Conclusion: The Cost of Inaction is Too High
Most MSPs have their own tech e&o / cyber insurance—but if your clients aren’t covered, you’re still at risk.
Without embedded cyber insurance, you’re leaving loopholes in your MSA, increasing your legal exposure, and risking customer churn in the wake of a cyber event.
At SeedPod Cyber, we help MSPs embed cyber insurance into their services—so every client is protected, and disputes over liability are eliminated before they happen.
👉 Want to see how it works? Let’s talk.
