The world is grasping for a way to prevent or lessen cyberattacks, and the growing problem has many businesses scrambling to get cyber insurance to minimize their impact. Many business experts say it has become a must-have for all types of businesses in 2021, making cybersecurity investing an emerging opportunity.
A data breach is a surefire way to damage a company’s brand reputation and revenues, after all, and the damage can sometimes be massive. Sony’s cost to address some newsworthy data breaches was at least $171 million, for example. Target bested that with one hack, which the company said cost it $202 million.
No one wants to be the victim of the next big hack, but cyber insurance can at least help mitigate the damage and hasten your recovery. This guide will dig into the details of cyber insurance, what kinds there are, what it typically covers, and some questions to ask your insurance agent if you’re interested in researching this product.
An Overview of Cyber Insurance
Cyber insurance is sometimes referred to as “cyber liability insurance” and covers liability for a data breach involving sensitive customer data, such as Social Security numbers, driver’s license numbers, or health records. Here’s what to keep in mind:
- Businesses use cyber liability insurance to cover legal fees and expenses associated with a data breach.
- They also leverage this type of insurance to cover the costs of notifying customers about a breach, recovering compromised data, and repairing damaged computer systems.
- A data breach can disrupt a business’s operations as well as resulting in thousands or millions of dollars in financial losses.
- It can even damage a business’s reputation, to the point where customers no longer trust a company to safely store and manage their personal information.
- Cyber liability insurance offers financial protection if a company experiences a data breach.
- The insurance covers the costs associated with breach recovery and remediation, so a company can remain operational after the incident.
A cyber insurance policy also helps a company remain transparent with customers following a data breach. Policies typically cover the costs of engaging with and supporting customers during this time.
3 Types of Cyber Insurance
There is no such thing as a one-size-fits-all cyber liability insurance policy. Coverage varies and must be tailored to a company’s needs. This ensures a business is well-equipped to guard against relevant cyber threats. Businesses considering this type of insurance should evaluate all available options, including:
This covers the immediate response costs associated with a data breach. These costs include finding out how the breach occurred, notifying those affected, and providing credit monitoring services to these individuals.
Information Security and Privacy
Businesses can be held liable if customers’ personal data is exposed in a data breach. Information security and privacy covers this liability. It is often used by companies that sell products and services directly on the internet or collect data within an internal electronic network.
Technology Errors & Omissions (E&O)
Technology E&O protects businesses that provide or sell technology services and products, regardless of whether they experience a data breach. This type of cyber insurance prevents businesses from having to cover the full cost of defending against a negligence claim made by a client or damages awarded in a civil lawsuit.
Businesses may decide they need to mix and match one or more of these coverages. They should review their cyber insurance options closely and understand exactly what their policy covers.
What Cyber Insurance Covers
Cyber liability insurance policies can include first- and third-party coverages. A clear understanding of both types of coverages is crucial to properly insure a business against data breaches.
First-party coverages are out-of-pocket expenses that arise as a direct result of a data breach. They ensure businesses are reimbursed for costs relating to any of the following data breach issues:
Data restoration coverage can come in handy if a business’s electronic data, programs, or software are damaged or destroyed in a cyberattack. It provides reimbursement to help a company restore or recover lost or stolen data.
Loss of Income
A data breach can temporarily shut down a business’s operations, causing it to miss out on opportunities to sell its products and services until it regains its footing. Loss of income insurance offers financial protection for a business as it rebounds from a data breach. It enables a business to avoid significant financial losses from a breach.
Cybercriminals may penetrate a company’s computer system and lock business users out of it. These criminals can then demand a ransom before they restore system access and will often threaten to release confidential data unless the ransom is paid. Cyber extortion insurance covers any extortion payment plus related expenses, including the cost of hiring an expert to negotiate with a cybercriminal.
Insurance is available to cover the cost of notifying customers if their personal information is compromised in a data breach. It can reimburse for the cost of alerting affected customers about the breach, providing credit monitoring services, and setting up a call center to support these customers. The coverage ensures businesses can comply with data breach notification laws.
A business may need to hire an attorney, forensic accountant, computer expert, or public relations expert to investigate a data breach. Crisis management coverage provides the funding necessary to hire professionals who can provide insights into the incident. The company can then find out whose data was compromised, address the incident, and protect its reputation.
Research shows that up to 60% of small businesses that are victims of cyber theft close their doors within six months. Having first-party coverage, then, can turn what could have been a crippling attack into an event that is much more manageable and much less damaging.
Those businesses that don’t find a good fit with first-part coverage might instead want to research third-party coverage. Third-party coverage addresses costs related to damages or settlements linked to a breach. They can include:
Network Security and Privacy Liability
Customers can claim that a business failed to properly protect their sensitive data or notify them about a data breach. Network security and privacy liability insurance offers financial coverage against these claims.
Electronic Media Liability
Data compromised during a breach can be published on the internet, which can lead to customer lawsuits against the business that experienced the breach. Electronic media liability coverage protects a company in the previously mentioned scenario against lawsuits that claim customers were victims of libel, slander, defamation, copyright infringement, invasion of privacy, or domain name infringement.
Regulatory agencies can impose fines against a business following a data breach, but businesses can use regulatory-proceedings coverage to get reimbursed for these fees. They may also use this protection to cover the cost of hiring an attorney to respond to a regulatory proceeding.
A cyber insurance policy can include a combination of first- and third-party coverages, so consider combining them as needed to cover your business’s particular risk profile. It’s advisable to work with an insurance company that has expertise in this emerging market to get your business covered properly.
What’s Typically Not Included in a Cyber Insurance Policy
Cyber insurance won’t stop a data breach. It does not present 100% coverage after a breach occurs, either. That’s partly because all types of insurance have exemptions, including cyber liability insurance. It is a new offering, so there is some variety among what kinds of exemptions insurers are requiring. Some of those include:
Don’t expect a cyber liability insurance policy to offer reimbursement for future profits lost because of a data breach. Those who believe loss or theft of data will negatively impact their future earnings can invest in an intellectual property insurance policy.
Acts of War
An agent of a foreign power can cause a data breach. But an insurance company may deny a claim associated with this incident under an act of war exclusion.
Security and Technology Upgrades
Businesses may invest heavily in security and technology improvements following a data breach. The costs of these upgrades are generally not covered by a cyber liability insurance policy.
Cyber insurance can deliver immense value to those who know its pros and cons and choose the right coverage. Crafting a list of cyber liability insurance questions can help those evaluating their options get the insights they need to make an informed selection.
5 Questions to Ask a Cyber Insurance Provider
Those considering cyber liability coverages should meet with several insurers to learn about and compare different coverage options. This approach can also help people find the right coverages at the best prices for their businesses. Questions to ask during this meeting include:
1. How Much Does Cyber Insurance Cost?
Shop around for cyber liability insurance. A company’s sophistication and ability to avoid an incident and coverage limit are the biggest factors in determining premium costs. Business revenue and the number of unique personally identifiable information (PII) or protected health information (PHI) records on a company’s systems can also affect its cyber liability insurance costs.
2. Is There a Deductible?
Cyber liability insurance usually has a deductible, i.e. a fixed amount that must be paid before a company’s coverage takes effect. The amount of the deductible is determined when the coverage is set up. Choosing a high deductible typically results in low premiums.
3. What Coverages Are Available?
A cyber insurance provider will look at a business, its risk of experiencing a data breach, and other factors. The insurer next determines which first- and third-party coverages best suit the business. It can update these coverages as a company grows.
4. How Does Cyber Insurance Protect a Business?
The benefits of cyber liability insurance are twofold. This insurance can cover the costs to immediately respond to and recover from a data breach. The insurance can also help a company get financial support as if it faces lawsuits or regulatory fines after the incident.
5. Is Cyber Insurance Necessary?
The volume and severity of cyberattacks is increasing, and the average cost of a data breach is increasing worldwide. Cyber insurance helps businesses protect against the damages and costs associated with cyberattacks and data breaches.
Cyber liability insurance is quickly becoming a must-have for businesses of all sizes and across all industries, regardless of their reliance on IT. This growing market may provide a lucrative cybersecurity investing opportunity as well.
Contact an Expert With Questions About Cybersecurity Investing
Businesses are increasingly investing in cyber insurance coverage to keep pace with emerging cyber threats. This is leading to new cyber insurance investment opportunities.
Option3Ventures can help you find the right opportunities in cyber insurance and other cybersecurity areas. Contact our team today for more information about cybersecurity investing.