Businesses in all industries use technology to operate efficiently, and although there are many benefits to digital technology, they have also exposed companies to risks like cyber attacks and data breaches. These risks cost millions - if not billions - a year in damages, as data loss can negatively impact businesses, including reputational damages, financial loss and fines. The global average cost of a data breach for a company in 2023 was $4.45 million.
Worse, 43% of cyber attacks are aimed at small businesses, because they typically have fewer defenses than larger corporations.
Cyber insurance has emerged as a crucial tool for protecting against cyber attacks. Combining cyber insurance with proactive cybersecurity best practices is a powerful method, so let’s see if your business would benefit from using cyber insurance.
What is Cyber Insurance?
Cyber insurance, AKA cyber liability insurance or cyber risk insurance, is designed to help protect businesses in the event of a cyber incident, such as data breaches, ransomware or phishing attacks. It also helps alleviate the financial consequences incurred during the event and the recovery efforts, so you don’t pay for it all out of pocket, including:
- Remediation and PR efforts
- Legal assistance and fees
- Investigative services
- Crisis communication
- Customer refunds
- Lost income and business interruption
- Notification expenses
- Recovering compromised data
- Repairing compromised computer systems
- Lawsuits from employees or customers
- Meeting state and federal regulations and fines
- Extortion/ransom demands
- Restoring customer identities
Cyber insurance is like any other form of insurance; insurance supplies sell it to companies looking for extra protection. They look at certain factors to determine your cyber insurance coverage and premium costs, like your industry, the number of customers, the type and volume of sensitive data you store and who can access it, your revenue, your claims history, industry regulations and your company’s risk exposure to cyber threats.
Any business that creates, stores or manages sensitive data, such as customer contacts, credit card numbers or medical records, would benefit from cyber insurance.
Types of Coverage and Agreements
Your cyber insurance policy comes down to the coverage you need and your insuring agreements. There are two main types of coverage: first-party and third-party.
- First-party coverage: This covers losses and expenses that directly impact the business, as well as costs for responding to the event.
- Third-party coverage: This covers losses suffered by other companies with business relationships with the affected company. It protects against liability that other companies might bring against you or financial consequences from cybersecurity or privacy obligations.
There are four types of insuring agreements: network security and privacy liability, network business interruption, media liability and errors and omission.
- Network security and privacy liability: Network security covers the legal responsibility and financial consequences a company may face due to inadequate network security measures that can lead to a data breach, malware infection, cyber extortion demand, ransomware or business email compromise. Privacy liability protects the insured business from losses due to unauthorized disclosure or misuse of customer and employee sensitive information, like credit card information, login credentials or SSN.
- Network business interruption: This covers expenses due to lost income and downtime from security and system failures, as well as remediation costs.
- Media liability: Media liability covers the risk of legal claims and financial losses from the company’s cybersecurity practices or breach of privacy obligations related to multi-media content, like online advertising, social media posts and print advertising.
- Errors and omission: This covers claims from errors in the performance or failure to perform services or contractual obligations.
What Cyber Insurance Doesn’t Cover
Unfortunately, cyber insurance doesn’t cover everything involved with cyber threats. Some policies have exclusions that limit coverage, so it’s essential to be aware of these limitations.
- Vulnerabilities and poor security processes that the company knows about but didn’t fix and then led to a cyber attack
- Cyber events caused by employees or insiders, as well as human error or negligence
- Infrastructure failures from external factors, not including a purposeful cyber attack
- Any breaches or cyber events that occurred before the policy was purchased
- Technology and security system improvements
- Losses due to intellectual property theft
- Potential future lost profits
Cyber Insurance Benefits
As you can see, cyber insurance offers numerous benefits:
- Peace of mind: Knowing your business has a plan in place to address cyber threats can provide peace of mind, not only to you, but to stakeholders, board members and clients. Cyber insurance policies are tailored to your specific needs, ensuring you have the coverage you need when you need it the most.
- Risk management: Cyber insurance encourages organizations to adopt robust cybersecurity practices to reduce risks, and insurers often offer resources and incentives to help strengthen your cybersecurity posture. In fact, strong cybersecurity usually means your company gets better coverage and policies. However, please note that cyber insurance should NOT replace your cybersecurity practices; it should complement your existing practices and processes.
- Financial protection: Cyber insurance provides a safety net for businesses to help cover the costs associated with cyber incidents.
- Compliance: Many industries have strict regulatory requirements regarding data protection. Cyber insurance can help organizations meet these compliance obligations and potentially mitigate fines resulting from violations.
- Reputation management: Cyber incidents can damage a company’s reputation and erode customer trust. Cyber insurance can provide coverage for PR efforts and help businesses manage their image before, during and after a cyber incident.
Cyber Insurance Challenges
Although cyber insurance brings many benefits, there are some challenges you should keep in mind. If you have any doubts or questions, thoroughly review the policy terms and work with an experienced insurance broker to tailor coverage for your organization.
- Evolving threat landscape: Cyber threats are continuously evolving, so insurance policies must keep pace by changing to offer the necessary protection. Understanding policy terms and limitations is crucial to ensuring you have the necessary coverage.
- Policy costs: Cyber insurance premiums can vary based on the size of the company, its industry and the level of coverage needed. If there’s a high risk for a cyber attack to occur, this can raise the prices, too.
- New industry: Cyber insurance is still relatively new, so policies can widely differ from provider to provider. Plus, pricing out coverage for a complex cyber attack is tricky.
Thriveon Can Help
As mentioned above, cyber insurance shouldn’t be your only layer of protection against cyber attacks. You should implement robust security practices, including these four cornerstones of cybersecurity.
However, we understand that implementing these measures can be difficult or overwhelming, so you can always turn to Thriveon for assistance. We offer proactive managed IT and cybersecurity compliance services so your company is always protected.
Let's chat.Schedule a meetingto learn how we can help boost your cybersecurity.