Cyber Liability Insurance: Meaning, Importance, Cost, Benefits

Technological developments have caused an increase in the number of cyber-attacks and security incidents today, and such incidents have become a severe threat to functionality, operations, and financial stability. 

The sophisticated tactics of cyber threat actors across industries drive organizations to seek robust cyber insurance solutions. This has caused experts to believe that the cyber insurance market is estimated to reach $84.62 billion within the next six years.  

Cyber liability insurance policies safeguard businesses from unforeseen technological risks and malicious attacks. In this blog, we will discuss the importance of cyber insurance and its significant benefits.

What is cyber liability insurance? 

Cyber liability insurance is a type of insurance coverage that helps protect an organization from financial losses caused by cyber-attacks or security incidents. Beyond security incidents, the insurance covers costs associated with restoring systems after a ransomware attack, network security failures, legal expenses due to the breaches and other digital mishaps. 

Why do you need cyber liability insurance?

Cyber liability insurance plays a vital role as it covers the costs incurred by an organization due to a security incident. A recent study by IBM revealed that the average cost of a global data breach in 2023 was USD 4.45 million, a surge of 15% over three years. This staggering image emphasizes the importance of investing in cyber liability insurance. 

We know that cyber threat actors today have sophisticated techniques. While basic security measures like antivirus software and firewalls are essential, cyber liability insurance is your safety net. It provides financial stability and coverage in the event of unexpected cyber incidents, supporting your overall risk mitigation efforts.

Cyber insurance provides businesses with the required financial resources to manage the risks associated with data breaches. This financial support enables companies to implement the required security measures and controls, helping them meet regulatory obligations and avoid potential fines for non-compliance.

Beyond mitigating financial risks, cyber insurance enhances your organization’s ability to respond effectively to incidents. The insurance also protects your reputation, provides access to expert resources, and ensures proper notification to customers in the event of a breach, facilitating swift and effective responses to cyber attacks or breaches. This proactive approach minimizes potential damages and ensures minimal disruption to your business operations.

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What does cyber liability insurance cover?

Cyber insurance helps cover costs associated with damages and data recovery following a breach incident. There’s more to cyber insurance than helping business owners manage their risk exposure and offering financial aid for a data breach. The insurance covers business interruption losses, including lost revenue and extra expenses incurred to restore operations.

The insurance also covers costs associated with network breaches that may expose confidential data. With cyber liability insurance in your corner, you’re covered for expenses related to regulatory fines, legal settlements, and follow-up audits. Here are a few other factors that cyber insurance takes care of:

• The policy also covers the cost of notifying customers or users in the event of unforeseen incidents. 
• It covers investigative costs by bringing in experts to tackle compromised data through computer forensic investigations.
• It helps in managing cyber extortion incidents and offers insurance coverage for risks.
• Offers coverage for liability claims from third parties such as think clients or partners – who take a hit financially due to a cyber incident involving your business.

Cost of cyber insurance according to 3 factors 

A report by AdvisorSmith Solution Inc. mentioned that businesses pay an average of $1,500 per year for $1 million coverage, and this includes a deductible of $10,000. 

A few other factors that influence the cost are listed below:

1. Nature of the business

The industry sector in which a business operates significantly impacts the cost of cyber insurance. Larger companies with complex networks and revenue systems may face higher costs due to greater exposure to risks. Also, industries handling sensitive data, such as healthcare and finance, tend to have higher premiums.

2. Level of coverage

The extent of coverage the business needs also influences the cost of cyber liability insurance. Basic coverage typically shields you from data breaches and legal expenses, but if you want more comprehensive options, like defense against social engineering attacks, expect to pay more.

3. Cybersecurity measures

Insurers note how well you guard against cyber threats. If your company has top-notch security practices such as regular assessments, employee training, and cutting-edge detection systems, you might pay lower premiums because you’re seen as less risky.

3 Main Benefits of Cyber Liability Insurance

Cyber liability insurance provides companies with coverage for financial losses that could arise from cyber risks, network breaches, data leaks, etc. Here are the three main advantages of having a cyber liability insurance:

1. Financial security

Cyber liability insurance offers financial security against damages resulting from cyber events. This policy covers charges and expenses related to investigating or identifying high-risk areas, credit monitoring, and other costs associated with data breaches. Additionally, it covers financial losses, income losses, business interruptions, and system repairs.

2. Shield from cyber risks

Cyber liability coverage is essential for protecting businesses from cyber attacks and high-risk intruders. By mitigating financial losses and legal liabilities, cyber liability insurance helps organizations effectively manage risks associated with cyber threats. 

It provides peace of mind knowing that your organization is protected against the potentially devastating consequences of cyber incidents.

3. Legal Support

Cyber liability insurance provides legal support to navigate the complex legal system during unexpected cyber issues. It covers expenses for legal counsel, potential lawsuits, legal compliance, and other costs arising from privacy violations or cyber-attacks.

Companies that can provide cyber liability insurance

Since cyber risks are becoming more potent lately, it is important for companies to look for efficient solutions for cyber liability insurance. Sprinto suggests the following three insurance companies for the best services:  

1. AIG

American International Group (AIG) is a globally recognized cyber insurance provider known for serving financial organizations. The insurance offers various cyber risk solutions that cover business interruption losses, system repairs, cyber extortion, data recovery, network interruption, legal fines, and costs related to third-party liabilities.

2. Chubb

Chubb is a global cyber insurance provider known for enterprise risk management solutions. The insurance offers provisions for businesses to minimize business interruption losses and offers customized risk mitigation solutions. 

The company offers various policies and premiums based on the type of industry that covers system repairs, data recovery, cyber extortion, incident response, and investigative expenses.

3. Beazley

Being a globally-leading organization, Beazley offers effective solutions to manage data privacy and security risks. The software is known for providing cyber insurance, particularly for healthcare in the US, specifically for organizations that follow HIPAA and HITECH. 

Beazley also provides risk management services including network security assessments, computer forensics, and training modules.  

How Sprinto protects you from cyber liabilities

In today’s SaaS landscape, cyber liability insurance acts as an arbiter to protect organizations from the financial volatility of cyber attacks. More than the financial safety aspect, it reveals the level of trust in the clients and the dedication to implementing robust cybersecurity practices. In this complicated territory, it is a key strategic motif that ensures the sustainability and thriving of SaaS ventures.

Sprinto is a cutting-edge compliance automation software designed to address and optimize your cyber liability insurance needs. This innovative tool thoroughly analyzes your cybersecurity posture, continually monitors controls, and performs compliance checks to consolidate potential threats. It helps you gather evidence, automate key tasks, and help auditors access and assess compliance in record time. 

Check out How NitroPack fast-tracked compliance with Sprinto.

Frequently Asked Questions (FAQs)

1. What are some of the common cyber insurance claims

Regular claims in cyber insurance are attributed to breach expenses (e.g., costs for notification and sums paid as legal fees), expenses resulting from ransomware attacks (including extortion payments), business interruption expenses, as well as third-party claims, which encompass legal defense costs incurred by the insurer from lawsuits brought by the aggrieved parties.

2. What are some typical exclusions in the Cyber Liability Insurance coverage?

Cyber liability insurance policies have exclusions such as omitted coverages related to acts of war, intentional acts, and security failures, regardless of whether the insured was aware of the oversight.

3. Does cyber liability insurance have a limit?

Yes. Cyber liability insurance typically has a limit. It is based on the maximum amount the insurer will provide based on the covered claims or losses within a specific period. The coverage limit can range between $500,000 to $5 million per occurrence.