Culhane Meadows’ Boston partner Lisa Rovinsky was recently quoted in an article by InformationWeek about what financial recourse companies have if there’s a cloud outage.
Here are a few excerpts from the article:
Cloud outages can result from a multitude of causes: software bugs, power failures, misconfigurations, resource exhaustion, and data center cooling issues. Cloud providers learn from each incident, accruing knowledge that can assist them in preventing future outages.
But cloud customers must manage the consequences of being cut off from their cloud-based operations in the interim. The longer an outage lasts, the more damage is done.
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Determining losses for a specific company during a specific outage is complicated. Companies relying heavily on the cloud will likely suffer more losses than companies with a mix of cloud and on-premises operations.
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Cloud service providers themselves are unlikely to cover any of the costs incurred as the result of an outage.
Industry standard service level agreements are remarkably restrictive, with most companies assuming little if any liability. Service credits are the most customers can typically expect to receive from cloud providers following downtime.
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“Many cloud providers currently do not offer meaningful SLAs, arguing the application must meet the demands of multiple customers,” says Lisa Rovinsky, partner at full-service law firm Culhane Meadows. “I think this power structure will be changing as customers become more sophisticated and hybrid cloud solutions develop.”
This puts the onus on clients to ensure that their cloud agreements are as airtight as possible from the get-go. Boilerplate contracts are unlikely to offer even cursory protection, so customization is increasingly the name of the game. Customized contracts will almost certainly be more expensive on the front end but may save some money in the event of a costly outage.
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Negotiations should include accountability for previous outages—and what was done to correct them. “The customer should also ask the cloud provider about any previous security problems or service interruptions it has had,” advises Rovinsky.
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It’s also worth considering the multiple sources of a potential cloud outage. Ransomware, and other cyberattacks, are usually covered by typical cyber policies. But not all cloud outages are related to cybersecurity.
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Cloud risk is broad. Customers can face data loss from ransomware or another form of cyberattack, and they can experience the fallout related to an outage with no relation to cybersecurity. This could mean businesses need to purchase more than one type of policy to provide adequate protection for the fallout of a cloud outage. Companies may also have the option of working reinsurance companies as a part of managing cloud risk.
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For CIOs and other decision makers, selecting insurance for cloud outage coverage is a matter of determining risk tolerance and finding a policy, or policies, with a price that adequately addresses the agreed upon business risk.
Still, it’s worth noting, as did a recent GAO report on cyber insurance: Some systemic failures may be essentially uninsurable. Companies should plan accordingly.
Read their entire article HERE to learn more.
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