DPDP Act may be driving surge in cyber insurance demand, with first-time buyers leading the spike

A senior executive at a brokerage association also noted that startups, traditionally the slowest adopters of insurance due to tight budgets, lean teams, and a focus on growth over governance, now account for a substantial chunk of new policy issuances.

According to multiple insurers and brokers, the most active new buyers are Series B and Series C startups, especially those in fintech, healthtech, mobility, SaaS, D2C and e-commerce, all of which process sensitive consumer data at scale.

Many of these firms previously relied on internal tools, outsourced IT teams, and ad-hoc cybersecurity solutions but are now turning to structured risk transfer mechanisms amid steep potential penalties under the DPDP Act, which allows fines of up to Rs 250 crore for violations related to security safeguards.

Mandatory breach reporting adds pressure

Industry executives say the DPDP Act’s requirement for mandatory breach reporting has further heightened anxiety among young companies, which now face not only financial repercussions but also reputational damage if incidents become public.

“Startups are realising that one breach can derail fundraising, stall customer acquisition or even trigger regulatory investigations. Insurance has become a necessary buffer,” said a senior cyber underwriting head at a leading general insurer.

Investor push becomes decisive trigger

But the most influential push, insiders say, is coming from venture capital and private equity funds.

Over the last quarter, several investors have started insisting that portfolio companies purchase cyber insurance before approving the next round of funding. In some cases, it has been added to due-diligence checklists along with statutory compliance, ESOP documentation and financial audits.

"Investors no longer want to carry the risk of a DPDP-linked penalty or a data breach that could wipe out enterprise value," said a broker. "Cyber insurance has become a hygiene requirement."

This investor-driven shift means founders who previously viewed cyber insurance as a “big-company product” are now buying it early in the company’s lifecycle.

Experts added, many are beginning with modest Rs 5-10 crore covers but returning within months to upgrade as they understand the true costs of breach response, from forensic investigations to consumer notifications, legal representation before the Data Protection Board, system restoration and crisis communication.

Industry insiders suggest that mid-term upgrades and off-cycle purchases have doubled since August, indicating growing realisation that cybersecurity exposure expands rapidly as startups scale product lines and user bases.

With India’s venture ecosystem continuing to deepen and DPDP compliance costs rising across sectors, industry players believe the trend is far from peaking. As one insurer put it, "This is the first time cyber insurance is being treated not as an optional financial product but as a compliance and fundraising tool. The shift is structural, not seasonal."