4 Benefits Of Cyber Liability Insurance & Why You Need It
Running a business usually means your biggest worries are about making enough money to pay the bills, keeping overhead costs under control, and even avoiding expensive lawsuits. Most business owners don’t think about hackers when they list their top financial stressors, but maybe they should. Cyberattacks are becoming more frequent and more sophisticated, especially as we’ve shifted to remote work in the post-pandemic world.
The cyberthreat statistics are shocking. In 2022, 71% of companies worldwide were affected by ransomware—and it’s expensive. In the U.S. alone, a data breach costs an average of $9.44 million. Businesses in all industries are prioritizing cybersecurity and explaining all your options for this effort would take another article entirely (at least). But if the worst happens and your data is breached, a cyber insurance policy can protect your business from the fallout. In this article, we’ll list the top benefits of cyber insurance and why you need it.
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What is cyber insurance?
Cyber insurance, also known as cyber risk insurance or cyber liability insurance, is a type of policy designed to help businesses protect themselves from digital threats and the potential consequences of those threats. The term “threats” sounds vague, so think of hackers, ransomware, malware, and phishing.
For small businesses, the biggest and most damaging threat is phishing attacks. This is when an attacker pretends to be someone known or recognized, such as a business contact, and gets a user to click a malicious link or download a malicious file that then gives the attackers access to the network or database…and all the sensitive information inside. Phishing accounts for 90% of all breaches in organizations and has cost businesses over $12 billion in losses.
The reality is that businesses in all sectors are facing data breaches where sensitive customer data is exposed (like phishing), as well as threats like ransomware attacks, where critical business data is encrypted and held hostage by cybercriminals until the company pays up. If one of these cyber incidents happens to your company, the obvious benefit of cyber insurance is that it will cover you for the financial losses. And coverage from a quality policy is broader than you might think.
What does cyber insurance cover?
The specifics can vary by policy and provider, but cyber insurance typically covers most of the costs and losses related to cyber attacks. If you’re shopping around, there are important things your cyber insurance policy must have. But generally, this is a summary of what a standard policy will cover:
Direct costs that your business incurs in the aftermath of a cyber incident, including:
- Data Restoration: Restoring, recreating, or retrieving lost or stolen data.
- System Repair: Repairing and restoring damaged systems.
- Ransomware Payments: The money paid to release your data from the cyber attackers.
- Business Interruption: Lost income and increased costs of operation due to the disruption caused by the cyberattack.
- Crisis Management: Professional assistance to help manage the situation and protect your reputation, including public relations support.
- Notifications: Legally mandated announcements to customers, suppliers, or regulators about the cyber attack.
- Fraudulent Wire Transfers: Funds lost through scams, such as phishing attacks, where an employee is tricked into transferring money to a fraudulent account.
The costs associated with claims and legal actions brought against your business by people or entities affected by a cyber incident at your company, including:
- Legal Defense: Hiring lawyers and the associated costs of mounting a defense if a third-party sues you over a breach of their data.
- Settlements & Judgments: Financial settlements or judgments that result from a lawsuit if you’re found liable.
- Regulatory Fines: Fines and penalties imposed by regulatory bodies, if allowed by law, for the cyber attack.
- Notifications: Announcements to third parties about the data breach, as well as the cost of credit monitoring services if offered to those parties.
While there is broad coverage for many losses associated with a cyber incident, this insurance does have limits. Many cyber policies exclude preventable security issues. For example, this could be if a company has poor configuration management, carelessly mishandles digital assets, or fails to correct a known vulnerability.
Make sure you read the fine print and consult with an insurance advisor to not only understand what’s covered on your policy, but also what’s excluded. And remember that cyber insurance is only one element of a broader risk management strategy, and is not a replacement for robust cybersecurity measures and practices.
4 Benefits Of Cyber Insurance
We’ve listed some stats and explained what’s at stake, but the main reasons why cyber insurance is important boils down to:
1. Financial Protection
Cyber attacks can be insanely expensive to manage, mitigate, and recover from. We’re talking losses in the millions of dollars, which can cripple a company. Cyber insurance shields your business from taking a financial belly flop after suffering a data breach, ransomware attack, or similar cyber incident. Your policy will cover you from financial losses relating to direct costs like system repair, and indirect costs like lost revenue due to business disruption, reputational damage, and legal fees if you’re sued for data privacy violations.
2. Recovery Assistance
Many cyber insurance policies also offer recovery assistance after a cyber attack. This could include access to cybersecurity experts, public relations professionals, legal advisors, and more. These specialists can help restore your operations, uphold your public image, and ensure you meet any legal obligations following a cyber incident. This will help you return to business as usual, as fast as possible.
3. Risk Management & Prevention Services
Cyber insurance providers often offer risk management and prevention services to boost your business's cybersecurity defenses. This can include things like vulnerability assessments, employee training, and advice on best cybersecurity practices. These are proactive moves to make before any threats surface, which not only helps prevent cyber attacks but also portrays your company as responsible and secure.
4. Business Continuity
Cyber attacks can disrupt business operations for extended periods, meaning you’re not making the money you should be and some of your employees may even be unable to perform their jobs. Cyber insurance can cover business interruption losses, keeping you financially afloat while recovery efforts are underway. This includes lost income and costs associated with operating from a temporary location or employing additional staff for recovery efforts.
Why do you need cyber liability insurance?
If your business creates, stores, and manages electronic data—which includes customer contact information, PII (personally identifiable information), credit card numbers, sales information, and similar—anywhere online, it’s a safe bet that you need cyber liability insurance. And any software you use, such as a customer relationship management (CRM) platform or marketing tool, will only offer a secure system up to a certain point and then the responsibility falls on your shoulders.
Even if you store a bunch of data online, do you need cyber insurance if you’re running a small business in a low-risk industry? We’ll let you decide, but here is the rationale for purchasing this type of policy:
Many business owners assume that they will be covered for cyber attacks under their other policies, such as errors and omissions insurance, general liability insurance, or even commercial property insurance. Unfortunately, that is not the case. Cyber insurance is a separate policy that provides unique protections against cyber threats.
Increasing Cyber Threats
As we mentioned earlier, cyber threats have become more frequent and sophisticated. From data breaches to ransomware attacks, businesses in all industries—not just healthcare and finance—are getting put under pressure by cybercriminals. Despite your best cybersecurity measures, there is always a risk that your organization may fall victim to these threats. Cyber insurance helps manage this risk and ensures that your business is protected financially.
The financial impact of cyber incidents can be steep. According to the 2023 Cost of a Data Breach Report by IBM, the global average cost of a data breach is $4.45 million. This includes the costs of identifying the breach, containing it, and carrying out a thorough investigation, as well as regulatory fines, legal fees, public relations efforts, and the cost of notifying customers.
Many countries and regions have stringent laws regarding data breaches and cyber incidents, with heavy fines for non-compliance. Cyber insurance can help cover these potential fines and the cost of legal defense.
If your customer information is hacked or data is held hostage, it can significantly damage your organization's reputation, leading to loss of public trust and business opportunities. Cyber insurance often provides crisis management and public relations support to help repair and maintain your reputation in the aftermath of a cyber incident.
Small and medium-sized businesses may lack the resources to handle a cyber attack efficiently and effectively. Cyber insurance provides access to experts and resources that can guide you through the response and recovery process, reducing the negative impacts and helping your business recover more quickly.
The Bottom Line
Cyber insurance is part of a larger, robust cybersecurity strategy. As your company advances it’s security practices, cyber insurance can be your failsafe if a threat becomes a reality. This is undoubtedly a complex topic and we are happy to explain more. To learn about your coverage options and the benefits of cyber insurance, contact us to talk to an insurance expert.
About The Author: Austin Landes, CIC
Austin is an experienced Commercial Risk Advisor specializing in property & casualty risk management for religious institutions, real estate, construction, and manufacturing.
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