In today's digital age, where the internet is an integral part of our lives, cyber insurance is no longer just an option, it's a necessity. Cyber insurance can protect your business from cyber risks such as data breaches and cyber attacks, which can lead to heavy financial losses, reputational damage, and the loss of sensitive information.
In this blog, you'll learn everything you need to know about cyber insurance - from what it is and who needs it, to how it works and what it covers. As an insurance veteran with over 26 years of experience, working with tens of thousands of clients, I will give you wisdom on cyber insurance policies and what you should look for when choosing one. So if you're looking for ways to protect your business from cyber risks, read on to find out more about cyber insurance and its importance in today's world.
Cyber insurance is a type of insurance product that helps entities (person, company, organization, corporation, business, firms, etc.) mitigate cyber risk and help reduce the financial risks associated with doing business online. It protects entities from the costs associated with internet risks that impact information technology and information management, but are often not covered by traditional insurance policies and company-specific insurance policies.
Cyber insurance, often referred to as Cyber Liability Insurance Coverage (CLIC) or cyber risk insurance, provides you with protection against a combination of equipment risks and the financial and operational impact of cyber attacks.
Cyber Insurance Policy cover can differ based on the insurer and the specific policy, but generally, it encompasses a variety of financial and support services tied to cyber risks, cyber attacks, and cyber events.
Here are some of the common coverages included in cyber insurance policies:
Network security isn't just about firewalls and antivirus software, it's also about managing the multiple impacts when these protections are breached. Similarly, privacy isn't just about keeping data confidential, but also about the consequences when that confidentiality is compromised. This coverage ensures that your company has a financial safety net to fall back on if its digital defenses are breached. This component protects your business from the effects of network security failure and covers issues of your technology systems such as data breaches, malware attacks, cyber extortion, and other digital threats.
First-party cyber coverage refers to the direct costs incurred by your company, while third-party coverage addresses the costs incurred by third parties affected by a security failure.
First-party coverage typically covers data recovery and restoration, forensic investigations, notification costs, or losses due to fraud. Third-party coverage, on the other hand, often includes the costs of defending and settling any government proceedings brought against you by affected customers as a result of a cyber event or data breach, as well as third-party media or network security liability.
With the ease of online publishing, individuals and businesses can inadvertently step on legal landmines. Even when you think you're in the right, defending against a legal claim can be costly and time-consuming. Multimedia liability insurance can cover these defense costs and ensure that a simple online misstep doesn't result in a significant financial burden. It also covers the cost of defending claims of defamation, invasion of privacy, or infringement of intellectual property rights in electronic content.
Cyber incidents that interrupt your business can impact your company including customers, partners, and stakeholders. An interruption can mean delayed deliveries, unmet contractual obligations, or services not provided. By providing financial support during such crises, NBI coverage helps you recover more quickly, minimizing overall disruption and potential damage to your image.
Cyber insurance policies not only respond to incidents but also provide you with proactive guidance on network security best practices and recommend robust protections such as firewalls, antivirus tools, and employee training.
Should a cyber incident occur, your insurance company will spring into action to provide important legal support. This can include help with legal fees, regulatory compliance, potential litigation, and other costs related to legal challenges.
Your cyber insurance acts as a financial bulwark, covering the cost of investigating cyber security incidents, restoring your digital infrastructure, and compensating those affected.
One of the immediate concerns is the potential unauthorized access to or disclosure of sensitive customer and stakeholder data when cyber threats culminate in an actual breach. Depending on the jurisdiction and legal environment, you may be required by law to notify affected individuals of the data breach. The process of notifying customers can be multi-faceted and costly; it's not just a matter of sending an email or letter. This insurance can help and cover these notification costs for you.
Understanding the scope and origin of cyber events really helps a lot. As part of the cybersecurity insurance coverage, you can hire computer forensics to recover compromised data. This team of forensic experts will allow you to thoroughly investigate and analyze the cyber event.
Important Note: You should thoroughly read your cyber insurance contract in order to comprehend the exclusions, sub-limits, deductibles, and other conditions. Today, the cyber insurance market are continually upgrading and developing new coverages to handle growing risks as the cyber risk landscape changes. To ensure you are sufficiently protected, you should constantly assess and renew your cybersecurity insurance coverage as needed.
Cyber insurance covers a range of risks related to cyber incidents. Here are the most common risks you may find covered by cyber insurance policies:
Data breaches that compromised data or theft of personal identities and information
Losses from fraudulent practices that trick employees into transferring money or disclosing sensitive information
Events such as ransomware attacks where cybercriminals demand money to restore system access or data.
Costs associated with rebuilding or restoring a company's digital assets after a cyber incident.
Expenses for public relations campaigns or other efforts to mitigate damage to a company's reputation after a cyber incident.
Costs related to legal proceedings following a security breach, which may include defense costs, settlements, and even regulatory fines (if insurable).
Costs of defending against claims of defamation, infringement of intellectual property rights, or invasion of privacy of electronic content.
Liability resulting from failures by companies providing technology services or products that lead to cyber vulnerabilities or breaches.
Rarely, but in some cases, cyberattacks can cause physical damage to computer systems or other assets, and certain policies may cover these damages.
To protect your company, be sure to work with a reputable business insurance provider who can offer a cybersecurity insurance policy that is precisely tailored to your company's unique risk profile.
The most common exclusions include unpatched software and systems within a specified period of patch availability resulting in a security breach, acts of war or terrorism, malicious acts by your employees or insiders, losses due to public infrastructure failures, liabilities under contracts, loss of revenue due to reputational damage, and the use of outdated or unsupported software or hardware.
Important note: If you knew of and did not report a cyber threat, cyber security incident or breach before you purchased or renewed your cyber insurance policy, claims related to that incident are generally excluded.
Cyber insurance isn't just for financial institutions or giant corporations; it's a must-have for almost everyone even small businesses. Almost any person or organization that relies on digital tools, stores information electronically, or conducts activities online can benefit from a cyber liability insurance policy.
First, entities that store sensitive data such as social security numbers, credit card information, medical records, or other personally identifiable information (PII) should consider getting one. Take for instance legal firms, accounting firms, marketing agencies, financial institutions, and other financial sector companies often offer credit monitoring services or process sensitive customer data and can be held liable if that data is breached.
Second, e-commerce businesses such as online retailers and service providers face particular threats from cyber criminals due to the nature of their business. Similarly, technology companies, software developers, IT consulting firms, and tech startups are not only at risk of intellectual property theft but can also be held liable for breaches stemming from software or services they provide to others.
Third, healthcare providers hold medical information that is highly valuable on the black market. Hospitals, private clinics, and other healthcare providers store this type of data and are frequent targets of attacks.
Fourth, government departments and agencies store large amounts of public data, making them potential targets for cyber risks and cyber events.
Fifth, individuals with significant digital assets or a prominent online presence, such as social media influencers, bloggers, or online entrepreneurs, may also benefit from personal cyber insurance.
Lastly, contrary to popular belief, smaller companies are often the target of attacks because they may not have as robust security measures as larger companies.
While these are some of the most common businesses and individuals who need cyber insurance, the list is constantly expanding due to the nature of the digital landscape. As our reliance on digital tools and online services increases, the importance of cyber insurance will expand to broader segments of society.
Cyber Insurance works systematically. Here's an overview of how cyber insurance works:
Your insurer often conducts a cybersecurity risk assessment or security audit before issuing a policy to understand your organization's cyber risks, and the industry you operate in and determine appropriate coverage and premium. The assessment is done through an approved assessment tool that may include a review of your IT infrastructure, data processing procedures, employee training programs, and incident response plans.
The results from the security audit or the documentation from an approved assessment tool can factor into the types of coverage your insurer will provide. You can then select a cyber insurance policy that meets your needs. Cyber insurance policies can vary by provider and specific policy, so it's important to carefully review policy terms and coverage options.
You will then need to pay the premium. Premiums are based on a variety of factors, such as the type and amount of data stored in your business or organization, industry, cybersecurity practices, previous cyber incidents, and the coverage amounts and deductibles you choose. The cost of a cyber liability insurance policy can vary depending on the scope of coverage and the size of your company or organization.
When a cyber incident occurs, you can file a claim with your insurer. Your insurer may provide you immediate access to a team of experts, such as legal counsel, forensic specialists, and public relations firms, to help you manage the incident. Your insurer will investigate the claim and, if valid, compensate you according to the policy terms.
Cyber insurance can offer advice on network security best practices, such as firewalls, virus protection, and employee training, as well as security measures. This can help you reduce the risk of a cyberattack and minimize the damage that results from such an attack.
Pro tip: As with all traditional insurance policies, there are exclusions and limitations to cyber insurance. For example, some policies do not cover incidents resulting from unpatched software if the patch was available for a certain period of time before the attack. Always read the policy carefully to understand its scope. It's important to regularly review and update your coverage to ensure you are protected against new risks. The best strategy is to combine sound cybersecurity practices with adequate insurance coverage.
Cyber insurance is important for you and your business that uses technology or collects data online because they are at risk of cyber attacks that can lead to financial loss. The last thing you want is for your business to suffer from the loss or theft of electronic data. Ensure the longevity of your business by protecting your assets!
Consider the 2011 cyberattack on the PlayStation Network, in which hackers intercepted the personal information of 77 million PlayStation users and significantly impacted Sony's online services. That attack had serious consequences, including a 23-day outage that prevented PlayStation users from accessing the platform. Sony suffered financial losses of about $171 million. It's worth noting that not all of these losses were covered by insurance policies, as Sony had to bear some of the financial burden itself.
Cyber Insurance helps bolster your business's network security by providing you with financial protection, risk management guidance, legal assistance, and peace of mind.
When a cyber incident occurs, immediate action can make the difference between a small problem and a major disaster. Cyber insurance ensures you have the resources to address issues promptly, from forensic investigations to damage mitigation. It can cover both direct and indirect financial impacts. This includes the immediate cost of remediating the breach and longer-term impacts such as business interruption or lost revenue. Also, if partners, customers or other stakeholders are affected by the breach, the insurance may cover any resulting claims or lawsuits.
Risk management guidance ranges from identifying to addressing vulnerabilities in your security infrastructure. You can receive timely information about new threats so you're always prepared. Also, your insurer can provide recommendations on advanced security measures so you can't only respond to threats, but proactively defend against them.
After a cyber incident, you may need to comply with various local, national and international regulations. Your insurance company can provide legal experts to guide you through this tangled web. If the affected parties decide to sue you, your insurance company can cover the cost of legal defense, ensuring that an incident doesn't jeopardize the future of your business.
When you know you have a safety net in place, you can operate with confidence and focus on your growth rather than potential threats. With the knowledge that the business is covered by insurance in the event that something goes wrong, you and your team can work with assurance and peace of mind.
The cost of cyber insurance can vary depending on the provider, specific policy, and scope of coverage needed.
For small businesses, annual premiums can range from $1,000 to $7,500 or more for $1 million in liability coverage, with a typical deductible of $1,000 to $5,000. However, for large businesses or businesses with significant risks, annual premiums can reach well into the tens or hundreds of thousands of dollars. Also, cyber insurance premiums can range from $650 to $2,357, based on companies with moderate risks.
Pro Tip: Businesses should be sure to work with an insurance broker or agent knowledgeable in cyber insurance to get an accurate cyber liability insurance quote and ensure they're adequately covered. With my extensive 27 years of experience in the insurance industry and a suite of professional qualifications - Certified Builders Insurance Agent (CBIA), Certified Insurance Counselor (CIC), Certified Risk Manager (CRM), Accredited Advisor in Insurance (AAI), and Chartered Property and Casualty Underwriter - I am well-equipped to guide you. My proven track record underscores my ability to customize a cyber liability insurance quote that precisely aligns with your business's specific requirements.
Cyber insurance policies typically have a deductible, similar to other forms of insurance. The deductible is the initial amount the policyholder must pay out of pocket before the insurance company will pay for a covered loss.
Imagine a data breach occurs at your company where sensitive customer data is compromised. After assessing the situation, you find that the total costs associated with the breach – including forensic investigations, customer notifications, electronic data, public relations, and more – amount to $300,000. With a $50,000 cyber insurance deductible, your company would pay the first $50,000. Once that amount is paid, the insurance company would cover subsequent costs up to the policy's maximum, which in this example is the next $250,000.
The amount of the deductible can depend on several factors: the specifics of your policy, the amount of coverage you choose, and the insurer's assessment of your company's cyber risk profile. It's a balancing act: choosing a higher deductible can often lower your premium because you're carrying a higher initial risk. On the other hand, a lower deductible can increase your premium.
Pro Tip: When selecting a cyber insurance policy, it's important to match your deductible with your company's risk tolerance and financial readiness.
When thinking about cybersecurity insurance as a business owner, you should first carefully assess the unique risks to your industry. This includes understanding the type of sensitive data you manage, evaluating the potential impact of a cyberattack, and assessing the likelihood of such threats.
Review the policy's coverage provisions in detail to ensure they meet your organization's specific needs. Coverage amounts must be sufficient to cover not only general liability but also potential financial losses from cyber events, resulting in legal liabilities and reputational damage.
The financial aspects of your policy, such as deductibles, should be in line with your company's fiscal capabilities. Remember that the deductible is the initial amount you must pay before the insurance kicks in. Make sure your company can afford this amount.
A solid policy often offers risk mitigation advice and suggests security measures such as firewalls, antivirus software, and employee training. Investing in these recommendations not only strengthens your protection but also exemplifies smart risk management.
Of utmost importance is to familiarize yourself with the policy's exclusions and limitations. Because these provisions can have a significant impact on your coverage for actual or predicted hazards, it's important to understand which scenarios are included and which are excluded.
You can successfully protect your business from the financial impact of cyberattacks by carefully evaluating your company's cyber vulnerabilities and selecting a policy tailored to those needs.
Data security and privacy are integral components of cybersecurity and therefore play an important role in cybersecurity insurance. They are closely intertwined with the design, cost, and operation of cybersecurity insurance plans.
Data security refers to technical protection measures and policies that prevent unauthorized users from accessing, modifying, or deleting data.
Data privacy refers to the way data is handled and used so that users' personal information is protected, their rights are respected, and all applicable laws and standards are met.
Your company's data privacy and data security will be considered when cybersecurity insurance providers advise on your insurance application. It helps if you have robust data privacy and security procedures in place, as this means you are less likely to have cyber risks and data breaches, which can translate into lower premiums from your cyber insurance coverage.
Andrew has an impressive 26 years of experience in the insurance industry, starting in 1997 and culminating in the establishment of his own successful insurance agency in 2009. His professional profile is enriched with prestigious certifications such as CBIA, CIC, CRM, and AAI, which have enabled him to navigate the dynamic landscape of the industry. Andrew's approach is deeply rooted in fostering strong client relationships, as evidenced by his interactions with tens of thousands of clients. He is a staunch advocate of continuous learning to keep pace with industry advancements. His website is a testament to his in-depth knowledge. It offers detailed insights, real-life case studies, and recommendations from credible institutions, all of which underscore his commitment to customized insurance solutions and professional integrity.