The Importance of Cyber Liability Insurance for Your Business
Many businesses assume that once they’ve purchased a business owner’s policy (BOP) or commercial general liability (CGL) insurance, they’re well shielded from all possible risks their business may face. What they fail to account for is the cybersecurity risks their businesses may be facing that can have significant financial implications.
According to a survey, 91% of small businesses have failed to acquire cyber liability insurance because of this reason. Most of these business owners also don’t understand the policy.
Cyber liability insurance protects your business from financial losses from a cybersecurity breach. These include regulatory fines, hardware repairs, and financial and reputational losses.
Here’s a dive into cyber liability insurance and why it’s one of the most important insurance covers you can get for your business.
What is Cybersecurity Insurance?
Cybersecurity insurance, also known as cyber insurance or cyber liability insurance, is an agreement that businesses can buy from insurers to minimize financial risks associated with conducting online operations. By paying a monthly or quarterly fee, the insurer assumes some of the risks of a cybersecurity breach, thereby reducing the business’s exposure. This insurance policy is relatively new in the insurance sector and has been driven by a significant rise in cyberattacks affecting businesses.
For instance, research shows that 61% of data breaches are directed toward small businesses. These companies have to pay $84,000 to $148,000 to cover the damages incurred from the attack.
Since it’s an emerging policy, the details of a cybersecurity insurance cover can vary drastically from one insurer to the next. Moreover, the coverage is also affected by the level of a business’s exposure to cybersecurity risks.
Most insurers develop their policies with limited information about the risk model of cyber threats, given how drastically they change from time to time.
Adoption rates are also very low across the industry. Data shows about 20% of small businesses have cyber liability insurance coverage.
How Does Cybersecurity Insurance Work?
Typically, cybersecurity insurance coverage falls into two categories. These are first-party and third-party.
First-party coverage includes direct expenses resulting from a cyberattack, such as:
- Paying ransomware demands
- Recovering lost data or repairing damaged data
- Hiring IT forensic experts to determine how the data breach occurred and the extent of the damage
- Recouping lost income due to business interruption
- Repairing or replacing damaged devices and rebuilding damaged networks
- Providing credit monitoring for affected customers
- Notifying vendors, customers, and other affected users whose data and personal information were affected
- Running a PR campaign to restore the company’s reputation
Third-party coverage includes indirect expenses resulting from a cybersecurity breach, such as:
- Regulatory fines and penalties
- Legal costs in lawsuits alleging breach of contract, negligence, and other claims
- Legal judgments
- Costs related to network security breaches, such as the transmission of viruses and malware
- Payment card industry (PCI) penalties and assessments
With the rise in cybersecurity incidents, research shows that cyber insurance premiums have surpassed $7.5 billion in total to allow insurers to cover these costs.
Why Do You Need Cyber Liability Insurance?
Despite most business owners not taking up cyber liability insurance, it poses significant risks to their businesses. The consequences of a cyberattack can be at least as severe as that of theft or fire.
A cybersecurity incident will have significant financial and reputational implications as long as your business relies on the internet for operations.
Research shows that 2 out of 5 small businesses have fallen victim to a cybersecurity incident worth reporting. Hackers are finding more sophisticated ways to infiltrate corporate networks and perform intricate attacks on their IT systems.
For businesses that have fallen victim, 66% reported in a survey that they wouldn’t survive the data breach alone. Antivirus software, firewalls, and other preventive technologies are nice and necessary add-ons, but cyber liability insurance provides extra cushioning in case a cybercriminal finds their way into your systems.
Moreover, data shows that 90% of cybersecurity breaches occur because of human error. Employees may open a malicious attachment containing malware or help orchestrate an attack on your business. Extra protection in case you fall victim is necessary.
Which Businesses Face More Cybersecurity Risks than Others?
No Business is immune to cybersecurity risks. However, the following are some of the most affected.
- Businesses providing professional services
- Companies taking electronic payments or credit cards
- Banking, credit, and other financial institutions
- Medical and healthcare facilities
Companies that take credit cards or electronic payments and businesses providing professional services encompass many organizations.
How Does a Cybersecurity Breach Impact a Business?
A cybersecurity breach affects businesses in four key ways. They include the following:
- Customer financial data – If a data security breach compromises your customer’s financial information, your business could be hit by heavy fines from debit and credit card companies. This often happens if the business is not compliant with PCI Security Standards Council requirements.
- Reputation – This is one of the most critical consequences of a cybersecurity breach. Small businesses are often hit harder and can’t afford the PR campaign to regain consumer trust.
- Stolen funds – Hackers can make false wire transfers and steal funds from a business’s bank account. The bank is often not responsible for such losses since its security protocols were untampered.
- Productivity – A cybersecurity threat can often derail company operations and employee productivity, especially if you don’t have a data breach response plan.
How Can You Prevent Data Breaches?
You can help prevent data breaches and reduce the risk of a cyberattack on your business in various ways. They include the following:
- Limit access to your most valuable data – Employees should only have access to relevant data to reduce exposure.
- Ensure third parties are compliant – You should know who your third-party vendors are and ascertain they comply with data protection and privacy laws.
- Conduct regular employee awareness training – As cybersecurity threats evolve, ensure you have consistent cybersecurity awareness training sessions to improve security and safeguard IT systems and data.
- Develop a cybersecurity breach response plan – A cybersecurity breach response plan provides a robust and reliable framework for responding to data security breaches and limiting the damage.
- Update software regularly – Most software vendors provide regular updates with patches to combat emerging cybersecurity threats targeting their software.
- Use strong passwords – Promote a strong password policy within the organization, ensuring employees don’t reuse their passwords and employ multi-factor authentication.
Work with a Trusted Cybersecurity Partner
With rising cybersecurity threats, it is paramount that you get a cybersecurity insurance policy to ensure you’re covered against the financial costs of a cyberattack. Partner with us today and let us help you secure your system and remain compliant.