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Shielding Your Business: Exploring the Vital Role of Cyber Insurance in Mitigating Cyber Risks

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What is Cyber Insurance?

In today’s digital age, with technology ever evolving, businesses are facing an increasing number of cyber threats, from data breaches to ransomware attacks. The cost of these incidents can be significant, not only in terms of financial losses but also in reputational damage. This is where cyber insurance comes in!

Cyber insurance is a type of insurance policy that provides financial protection to businesses of all sizes in the event of a cyber attack or data breach. Cyber insurance is designed to help businesses mitigate the risks associated with cyber attacks and provide financial protection in the event of a cyber attack or breach. However, with so many different policies and providers out there, it can be very difficult to know where to start. Let’s explore the basics of cyber insurance and what businesses need to know to make an informed decision when it comes to protecting themselves from cyber threats. 

Cyber risk insurance policies typically cover a range of costs associated with a cyber incident. These costs can include:

  • Investigation expenses
  • Legal fees
  • Data recovery costs
  • Notification costs to affected parties 
  • Business interruption losses and damages to a company’s reputation

Cyber insurance policies may vary in terms of the specific risks covered and the extent of coverage provided. It is important for businesses to carefully evaluate their cyber risks and choose a policy that provides adequate protection for their specific needs.

Who Needs Cyber Insurance?

In this day of being a data driven universe, companies of all sizes are being targeted and attacked. Any business is facing online exposure through websites, email phishing attacks, and various types of consumer interaction as well as credit card processing. One hacker, a lost laptop, phone or notebook can expose your company to serious risk. Let’s not forget a virus or worm getting into your system. One serious incident can put your company’s reputation, financial well being, and face a huge liability with dire consequences.

According to Kaspersky, 1 in 5 businesses has experienced data loss or exposure due to a cyber attack. Their report goes on to state that: "The average financial impact of a single data breach and attack vector for an SMB (small and medium-sized businesses) is an estimated $86.5k." Your small business cannot afford not having cyber liability insurance. What would happen to your business if it was facing any of the incidents described earlier? 

If you handle any of this information, this coverage is a must:

  • Social Security numbers
  • Medical and Person Health Information (PHI)
  • Customer credit card information
  • Customer names, addresses, phone numbers, etc.

Most general liability policies will not cover the loss of customer or employee information resulting from a data breach. Some insurance companies offer very basic or limited cyber liability coverage—but with significant gaps.

Why Is Cyber Insurance Important?

With cyber threats becoming increasingly common and sophisticated, cyber insurance is more important than ever. Data breaches, theft of sensitive information, business interruptions, and reputational damage are all possible results of a cyber attack, including significant monetary damages. Cyber insurance provides financial protection and helps businesses recover from cyber attacks.

Cyber insurance not only serves as a protection, but also provides businesses with peace of mind knowing that they have a plan in place if there were to ever be a cyber attack or threat. Cyber threats will keep evolving, unfortunately, but that means it's so important for businesses to be proactive in an effort to protect themselves from malicious cyber risks. 

What Is Covered Under a Cyber Insurance Policy?

The coverage provided by a cyber insurance policy can vary depending on the insurer and policy type. This is helpful to businesses with varying needs, but it can also seem daunting when trying to find a fitting policy for your business. 

First Party Damages Covered 

Cyber liability insurance offers liability coverage as protection against a claim of damages as the direct result of a data breach. This coverage may include cover for the cost of:

  • Loss of electronic data: This insurance covers the cost to repair damaged software or replace lost or stolen data from the cyber attack.
  • Cyber extortion: If a cyber criminal is holding your data and/or information hostage for a ransom, this insurance coverage can help pay for the ransom.
  • Business interruption/loss of income: If a data breach or cyber attack leaves you unable to operate your business, some cyber liability insurance policies can help cover lost income and expenses.
  • Security fixes and cyber forensics: Cyber liability will help cover the costs of upgrading your security and investigating the data breach.
  • Notification and identity protection for affected customers: Cyber liability helps cover the cost of notifying customers impacted by data breaches and pay for identity protection.
  • Fraud and credit monitoring services: Cyber liability can cover the cost of credit monitoring for any customers impacted by a data breach. 
  • The impact on your business reputation: Cyber liability can help cover the costs of handling public relations and repairing the damage to your business reputation. Libel, copyright or infringement, and defamation

Every cyber liability insurance provider outlines different coverages and exclusions in their policies—the coverage can vary widely. So make sure you talk with a specialist to determine

Third-Party Coverage Offered

  • Damages to a third-party system (in case of an accidental virus transmission, for example)
  • Network Security and Privacy Liability: This covers your small business from liability for alleged negligence or that you failed to properly protect customer information.
  • Media Liability Claims: This includes accusations of libel, slander, fraud, etc.
  • Regulatory proceedings and or fines form regulatory bodies
  • Legal costs, settlements, and damage awards up to the limits of the policy

It is vital to review the terms and conditions of a cyber insurance policy carefully to understand what is covered and what is not. Some policies may have exclusions or limitations, such as exclusions for certain types of cyber attacks or limitations on the amount of coverage provided. 

What Is Not Covered By Cyber Liability Insurance?

Cyber insurance policies can provide essential protection against a wide range of cyber threats, however, there are some exclusions and limitations to this coverage. Here are some examples of what may not be covered by a cyber liability insurance policy:

  • Intentional acts: If a cyber attack was carried out intentionally by an employee or authorized individual, the resulting damages may not be covered by a cyber insurance policy.
  • Prior acts: Some policies may only provide coverage for damages that occur after the policy is purchased, and may not cover damages resulting from prior events or known issues.
  • Physical damage: Most cyber insurance policies will only cover intangible losses, such as data loss or theft, and may not cover physical damage to equipment or property resulting from a cyber attack. 
  • Contractual liability: Some policies may exclude coverage for liabilities that the insured has assumed under a contract or agreement.

Data Breach Insurance

With so much data saved in your business' computer networks and on the cloud nowadays, you're probably extra concerned about security. Even though you take every possible measure to avoid data breaches, they can still happen. In the case of a cyber incident, you need to have data breach coverage and cyber insurance policies that protect you and your customers.

Who Is Liable for a Data Breach?

Typically, the data owner is liable for a security breach, ransomware attack or, any other cyber incident in which data is compromised or stolen. “Data owners” refers to business owners such as you who collect and store data from your customers, whether on your own networks or on the cloud. Even when the security of the data holder (i.e., the cloud provider) is questionable, the data owner is still likely to be held liable.

This means you may be responsible for damages and reimbursements if a data breach puts your customers at risk for identity theft and fraudulent charges on their credit cards or against their bank accounts. Data breach or cyber liability insurance can help offset your costs should the worst come to pass.

Are Cyber Liability and Data Breach Insurance the Same Things?

You may wonder if cyber liability and data breach insurance are the same things. They're not. Cyber liability insurance is broader. It provides first-party coverage, which is financial in nature. It covers everything from notification and investigation costs to lost revenue to repair costs for equipment. It may also cover lost profits and credit monitoring. This kind of cyber coverage also offers third-party coverage, which takes care of liabilities from lawsuits, including lawyer fees and settlements.

Data breach insurance, on the other hand, offers only first-party coverage. This is still critically important so that you and your customers can have peace of mind that if data is compromised or stolen, funds are available to help in the recovery and monitoring processes.

How Much Does Cyber Insurance Typically Cost?

The cost of cyber insurance can vary depending on several factors, including the size of the business, the industry, the level of risk, and the coverage limits. Generally speaking, the larger the business and the more sensitive data it handles, the higher the cost of a cyber insurance policy. 

A small business may be able to purchase a basic cyber insurance policy for a few hundred dollars per year, while a large corporation may need to pay tens or hundreds of thousands of dollars per year for a more comprehensive coverage policy. It is all dependent upon the business’s characteristics and its needs.

The average cost of cyber insurance in the U.S. in 2021 was $1,589 per year or $132 per month. According to IBM, the average cost of a data breach was $4.35 million in 2022. These rates continue to rise!

It’s important to understand as a business owner though, that the cost of cyber insurance is just one factor to consider when evaluating whether to purchase a policy. The potential cost of a cyber attack, including the cost of investigating and responding to the attack, notifying customers, and defending against legal claims, can be far greater than the cost of a cyber insurance policy. Therefore, businesses should carefully consider the potential risks and costs associated with a cyber attack when deciding whether to purchase cyber insurance. 

Let us help you protect your business with cyber insurance and keep your mind at ease. At Tivly, our goal is to help you find protection for your business as efficiently as possibly by matching you with the right insurance provider. Simply give us a call at 877-907-5267 or complete the form above and one of our specialists will contact you right away.


Related Articles: General Liability Insurance, Professional Liability Insurance 

Reviewed By: Sarah Reid, Licensed Agent

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