What is cyber insurance?
Cyber insurance is a type of business insurance specifically designed to cover the damages and losses associated with cyber security incidents such as data breaches, malicious attacks, and other cyber events.
It provides coverage for businesses from financial loss resulting from a variety of cyber threats, including those impacting third parties or customers.
What is the difference between cyber liability and data breach insurance?
Cyber liability insurance is a type of insurance that helps pay for damages or losses from cyber security incidents, like breaches and malicious attacks. Similarly, data breach insurance helps pay for damages or losses from a breach.
The main difference is that cyber liability coverage is specifically designed for attacks originating outside of your company, whereas data breaches can occur from within. Also, data breach insurance typically does not cover the cost of legal protection—something that is often included in cyber liability coverage.
What does cyber insurance cover?
Cyber liability coverage helps pay for damages or losses associated with a cyber incident, such as those resulting from external data breaches, hacking incidents, malware and ransomware attacks, system failures, or other cybercrime.
It can help cover the cost of restoring or replacing compromised systems or information, lost data, and customer notifications following security incidents. It can also help cover your business during a cyber attack and pay for expenses relating to extortion, forensics and legal investigations, crisis management, fraud response, and public relations.
In some cases, you may find yourself in a lawsuit after a breach of personal data. In this case, cyber insurance coverage can provide financial protection from lawsuits brought by customers who may have suffered financial loss due to a breach. This often includes legal expenses related to defending against allegations of negligence on behalf of the business in the event of a cyber attack.
Any non-cyber-related incidents will need additional coverage such as business personal property insurance, workers comp, and professional liability insurance to protect your business from damages such as injuries, business malpractice, and acts of sabotage.
These are some of the major issues covered by a cyber policy:
In short, cyber liability insurance provides coverage for various risks associated with cyber security incidents, such as data breaches, malicious attacks, and other cyber-related events. However, it typically does not cover things like employee negligence, copyright infringement, or employee-caused data breaches.
To help you understand how this insurance would work in the event of a cyberattack, let’s look at some real-world examples of data breaches.
How does cyber insurance work?
Cyber liability insurance works by providing financial protection to businesses in the event of a cyber-related incident.
Here’s a general overview of how the process works:
- You purchase a cyber liability insurance policy from an insurer that meets your business needs and risk profile.
- In the event of a cyber incident, such as a data breach or cyber attack, you notify your insurer as soon as possible and provide details about the incident and any relevant documentation.
Your insurer assigns a claims adjuster to investigate the incident and determine whether your policy covers the loss.
- If your policy covers the loss, your insurer will pay for the covered expenses, such as data recovery costs, business interruption, legal fees, and settlement or judgment costs.
If your policy does not cover the loss, you may need to pay for the expenses out of pocket.
It’s important to note that cyber liability insurance policies can vary widely in terms of coverage, exclusions, deductibles, and limits. To ensure that your business is adequately protected, you should carefully review the policy terms and conditions and work with your insurer to assess your risk profile.
Here are three examples relating to different types of cyberattacks showing how cyber liability insurance can help your business:
Phishing Attack Example
A phishing attack is one of the most common forms of cyber attack that can result in a data breach and financial loss for a business. In this type of attack, malicious actors send emails that appear to be from legitimate sources asking the recipient to enter personal information such as usernames, passwords, or credit card details. If this information is entered into the malicious website, fraudsters can use it to commit identity theft, gain access to bank accounts or steal company data.
In the event of a phishing attack, cybersecurity insurance can cover the costs associated with:
- notifying customers of a security breach
- repairing damaged systems and data
- providing credit monitoring services to victims
- investigating the incident.
It may also cover legal fees associated with defending against a lawsuit.
Ransomware Attack Example
During a ransomware attack, malicious actors encrypt valuable data on the target’s computer system. They then demand a ransom payment in exchange for releasing the encrypted data back to the organization. Failing to pay could mean permanent damage to systems and sensitive data falling into the wrong hands. Ransomware attacks are becoming increasingly common and they can do significant damage to businesses if not addressed quickly.
Cyber insurance policies can help protect businesses by covering costs associated with file restoration and system repairs, as well as losses due to downtime caused by the incident.
Malware Attack Example
Malware is software designed specifically by hackers to gain unauthorized access or control over computer networks or computers. Once cybercriminals access the system, they can steal sensitive data or disrupt operations. A malware attack may also involve malware being sent via email or through malicious websites that infect devices if opened.
In this case, cyber insurance policies can provide:
- reimbursement for lost revenue due to downtime caused by a malware attack,
- public relations expenses to help minimize damage to the business’s reputation
- cyber extortion payments if applicable
How much does cyber liability insurance cost?
The cost of cyber liability insurance will vary based on the type and extent of coverage, but it typically costs between $250 and $5,000 per year.
Smaller businesses—and those facing less cyber risk—may be able to secure coverage for less. The size of your company and the value of your assets should also factor into how much you pay for cyber liability insurance coverage.
For example, we got a quote for cyber insurance using Simply Business’s quote-building tool. For an apparel and clothing retailer located in Los Angeles, USG quoted a total price of $250 per year for $250,000 of coverage per occurrence ($250,000 aggregate) with a $1,000 deductible for all claims. Available quotes and coverage amounts were the same for a range of business types.
In some cases, businesses may be eligible for discounts if they have comprehensive IT security protocols in place. An experienced cybersecurity specialist can help you evaluate your needs and find an appropriate policy that fits within your budget.
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Why do small businesses need cyber liability insurance?
While it may seem like only larger businesses need cyber insurance coverage, small businesses, such as an e-commerce business are arguably at greater risk for cyberattacks as they typically have less robust cyber security in place.
Even if you have robust security systems in place, no company is immune to the risks associated with cyber threats.
Cyberattacks typically involve costly responses that can decimate the bottom line of your company. Typically, a small business owner would need to identify and rectify the data breach, notify the affected customers, and typically pay for credit monitoring services for a period of time for all those affected. This can end up being time-consuming and expensive.
According to the insurance provider, Simply Business, just the investigation into what happened could cost between $10,000 and $100,000 alone. Not to mention the aftermath and using a PR company to clean up your brand image.
For these reasons, it’s a good idea for any organization that relies on technology to conduct business to consider investing in cyber liability insurance. This includes companies of all sizes, ranging from small businesses to large enterprises.
Is cyber insurance required by law?
Cyber insurance is not legally required, but in certain industries or organizations, it may be necessary. This is especially true for industries handling sensitive customer data such as health information, personal ID information such as tax ID numbers, social security numbers, or banking and credit card information.
On another note, some companies or customers may require that their partners or vendors have cyber liability coverage before conducting business with them.
What type of cyber liability insurance do I need?
Cyber liability covers more than just data breaches, so it may be better than data breach coverage if you need protection from other cyber-related events.
This is especially true when it comes to insurance for online businesses. However, if your main concern is data breaches, consider getting a data breach policy, as may be appropriate for sole proprietorship insurance.
Ultimately, it depends on your individual needs and the types of cyber security incidents your business is most vulnerable to. A knowledgeable insurance agent can help you evaluate your risks and develop a customized cyber liability insurance policy that meets your needs and budget.
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