Cyber insurance is your business’s best friend because it’s better to be safe than sorry. Cybercrimes such as ransomware, malware and distributed denial-of-service (DDoS) attacks cause data breaches, resulting in loss of revenue and business credibility. These risks evolve continuously and dynamically, so along with having endpoint security in place, you must insure your business.
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Deciding whether or not you need insurance can be tricky. In this article, we’ll guide you through the process and discuss various considerations in choosing cyber security insurance.
What This Article Covers
- What Is Cyber Insurance?
- Who Needs It?
- How Does It Work?
- Which Risks Are Covered and Excluded?
- What Does It Cost?
- First-party vs. Third-party Coverage
- Questions To Ask
- Market Trends
- Can It Replace Cyber Defense Systems?
- Steps To Reduce Cyber Security Risks
- Next Steps
What Is Cyber Insurance?
Cyber insurance is a specialized insurance contract that can help cover a business’ liability in case of a data breach. The insurance contract transfers the risk from the insured to the insurer in exchange for a monthly or quarterly fee known as insurance premiums.
As a crucial risk mitigation and transfer strategy, it allows your organization to share liability when things get rough. Effective insurance policies reimburse you not only for the direct cost of a data breach but also cover legal liabilities and costs of third-party cases.
Cyber security insurance typically protects against data breaches involving sensitive customer information such as credit card numbers, health records, social security numbers and more. Unlike general liability insurance, this doesn’t cover bodily injuries or property damages. Therefore, general liability policies don’t cover cyber liability.
Besides covering your losses, it offers pre- and post-breach management resources and tools to assess the threat situation and protect against future threats.
Who Needs It?
Every company that uses the internet and technology to conduct business is at risk of cyber attacks. Rather than questioning whether it will happen to your business, it’s important to prepare for when it will and plan how you will respond in the event of an attack.
Data breaches lead to a loss of reputation, revenue and customers making businesses liable to cover the damages. Cyber liability insurance protects your enterprise against such losses from cyber attacks and also provides remediation opportunities.
The Sony PlayStation Network hack exposed 77 million users’ personally identifiable information (PII) in 2011, preventing them from accessing their consoles. Sony incurred huge losses to cover the cost of this massive security breach due to no cyber insurance.
Most online businesses benefit from having a cyber security insurance policy. You must insure your business if you fall into one of the following categories:
- Ecommerce businesses
- Customer information storage websites
- Companies that manage electronic data online
- Healthcare enterprises
- Financial institutions
How Does It Work?
Cyber insurance works more or less the same as general insurance. Several suppliers sell policies and also offer different but related types of business insurance, such as business liability insurance, errors and omissions insurance, and property insurance.
Insurance policies generally include first-party and third-party coverage. First-party insurance coverage deals with losses incurred directly by the entity. Third-party insurance covers losses other enterprises incur from business relationships with the affected company.
Apart from covering financial losses, cyber security insurance also covers costs related to remediation, including legal consultation, cyber forensics, refunds and crisis communications.
Which Risks Are Covered and Excluded?
Most cyber liability insurance providers cover costs related to:
- Extortion ransoms from ransomware attacks.
- Litigation fees incurred.
- Notifying affected parties via crisis communication.
- Remediation of stolen data.
- Restoring identities of exposed PII.
- Hiring or consulting cyber forensics experts.
- Forensic investigation costs.
- Regulatory fines.
- Risk management expenses.
Cyber insurance policies exclude certain issues typically caused by human negligence, such as:
- Breaches occurred before the policy came into effect.
- Attacks that happened because of poor cyber security infrastructure.
- Risks associated with known vulnerabilities like publicly disclosed security bugs and pre-identified open ports that you could have managed.
- Costs related to improving security after an attack.
- Cyber attacks by the insured.
- Losses incurred by nation-state attacks or an act of war.
Other than that, several policies also exclude intellectual property loss, potential profits loss and cyber security infrastructure enhancement cost.
What Does It Cost?
Generally, the pricing of a cyber liability insurance policy is determined based on your company’s infrastructure and ability to prevent cyber attacks and coverage limits. It also depends on the company’s type and annual revenue.
Your PII records or other unique identifiable metrics are audited and analyzed to determine insurance premium costs. You must adhere to the insurance company’s guidelines and submit company details for yearly security audits.
Depending on requirements, you might have to provide documentation obtained by Federal Financial Institutions Examination Council’s (FFIEC) approved assessment tools. These results also significantly impact the contract and premium charges.
First-party vs. Third-party Coverage
| First-party Coverage | Third-party Coverage |
|---|---|
| Protects your business data and customer information. | Protects against the liability costs of a third-party claim. |
| Pays legal fees for compliance and regulatory consultation. | Pays customers affected by the breach. |
| Offers customer notification and call center services charges. | Offers all kinds of external damages and settlement charges. |
| Provides lost revenue for interruption of your business operations. | Provides compensation related to copyright infringement or defamation cases. |
| Compensates for penalties and fines imposed by officials for regulatory compliance issues. | Offers accounting costs for all affected external parties involved with your business. |
| Arranges forensic services for attack investigation. | Arranges settlement and claims expenses for lawsuits. |
Questions To Ask
Remember to ask these questions for adequate insights into your requirements and the policy’s efficiency before finalizing a contract.
- How many cyber security professionals do we have?
- What kind of security infrastructure do we have?
- What’s our cyber security budget?
- How much sensitive information do we need to protect?
- What kind of incidents does the insurance cover?
- Does the insurer have enough experience in your industry?
- Which specific things do you exclude from the coverage?
- What are the compliance or audit requirements?
- What’s the response period after the attack?
- Is there a possibility of changing coverage in case of a modified attack?
Market Trends
The global cyber insurance market is projected to grow from $12.83 billion in 2022 to $63.62 billion by 2029, with a CAGR of 25.7%.
The Cyber Security and Infrastructure Security Agency (CISA) in the U.S. is actively encouraging businesses to constantly improve their cyber security measures. A robust security infrastructure can help minimize expenses and achieve more insurance coverage. However, premium policy rates skyrocketed in 2021, increasing risks for companies. These rising rates are leading to direct loss ratio improvements for insurers, increasing the chances of seeing more insurers in the market.
Can It Replace Cyber Defense Systems?
It’s only natural to think that since cyber insurance mitigates security risks, can it replace endpoint security solutions? The answer is no. Just like you shouldn’t drive without wearing a seat belt if you have health insurance, you cannot replace your cyber risk management process with cyber insurance.
Also, the insurer analyzes your company’s security infrastructure when you buy cyber insurance. Robust security postures can ensure better coverage and lesser premiums. Without adequate cyber defense resources in place, you may end up buying the wrong policy. It’s also worth noting that you wouldn’t be able to insure your business if you don’t have any security system in place.
Steps To Reduce Cyber Security Risks
Incorporating a combination of secure devices, technology, cyber insurance and domain expertise can help minimize cyber risks and significantly enhance your defense system. Follow these steps to do that:
- Employ credible cyber security professionals to assess your company’s cyber readiness. Also, perform security audits to identify vulnerabilities and gaps in policies and incident response.
- The next step is implementing proper security measures to protect endpoints against threats. Endpoint security software might be a good option to implement.
- Finally, choose an appropriate cyber insurance policy with the best coverage and lower premiums, and you’re all set.
Implementing these steps may not guarantee complete protection but can minimize your risks to a point where you won’t have to worry about them.
Next Steps
If your business deals with a lot of sensitive information online, you must sign up for cyber liability insurance. Since the cyber insurance industry is relatively new, policies vary widely from one insurance provider to the other. To find the right fit, you should consider your cyber security budget, business requirements and capabilities.
Also, implement effective endpoint security systems to make sure your insurance premiums stay affordable, and you get the best coverage. You can check out our free comparison guide and compare top security systems.