Understanding Cybersecurity Insurance: A Simple Guide
Meeba Gracy
Jun 27, 2024
With cybercrime on the rise, more companies face the threat of data breaches, ransomware attacks, and other cybersecurity incidents. A data breach can harm more than just your computer system. It can tarnish your reputation and jeopardize your customers and employees.
Surprisingly, among companies affected by data breaches, 76% say that the impact is as disruptive or worse than a natural disaster or fire. While cyber insurance is a necessary precaution for any business, regardless of size, many small and medium-sized businesses aren’t aware of it or view it as unnecessary.
In this article, we delve into cybersecurity insurance and how to choose the right one for your business.
What is cybersecurity insurance?
Cybersecurity insurance or cyber liability insurance is a particular type designed to protect businesses from risks stemming from the internet and information technology.
Cyber insurance typically covers the business’s responsibility if a data breach involving sensitive customer information like social security numbers, payment details, and health records is impacted.
Cyber insurance reduces the company’s financial liability in the event of a cybersecurity attack. This helps mitigate damage and restore normalcy when a serious security incident occurs. Think of it as a safety net to handle the rising cyber risks of online business.
Who needs it?
Cyber liability insurance is integral if your business stores or handles sensitive information. This is especially true for finance, manufacturing, healthcare, and service businesses.
Cybercriminals often target small businesses and charities due to their comparatively lower security measures. So, organizations shouldn’t assume they’re safe even if they are not big corporations.
How does cybersecurity insurance work?
Cybersecurity insurance works similarly to other types of insurance policies. Here’s a simplified explanation of how it typically operates:
- First, the insurer assesses your business’s cybersecurity risks. This may involve evaluating your security measures, data protection policies, and past incidents.
- Based on the assessment, you choose a cybersecurity insurance policy that suits your business needs. Policies can vary in coverage limits, types of incidents covered, and premium costs.
- You pay a premium to the insurance company, either as a one-time payment or in regular installments.
- If your business experiences a cybersecurity incident, such as a data breach or cyberattack, you file a claim with the insurance company. The specific incidents covered will depend on your policy.
What does the cybersecurity insurance policy cover?
Cybersecurity insurance usually covers some of the issues most cloud companies face. These issues may vary from one insurance provider to another. However, most remain the same. Usually, cyber insurance covers the cost of restoring your systems and any other issues related to business interruption costs.
Here are some of the issues most cyber insurers consider as a liability:
1. Data loss and recovery
Data loss is a precarious condition if you have a vast IT system, which may fall victim to data being destroyed during transmission or storage. This can happen due to neglect as well. Recovery is a process where lost data are restored through backups.
2. Data breaches
Businesses are obligated to inform their customers if any personal information, such as names or addresses, is exposed during a data breach. Cyber insurance often steps in to help cover the cost of telling customers about the breach as well.
Of course, there’s also the damage control after a breach. Cyber insurance can assist in recovering any data that’s been stolen and fixing up any systems that got messed up during the attack.
3. Legal fees
And if things get legally sticky, cyber insurance can cover legal fees and even help businesses hire experts to fix the mess and get back on track. Plus, it’s not just the business itself that might suffer losses. If business partners with access to data are affected, cyber insurance can also cover the liability.
4. Ransom demands
Sometimes, attackers demand a ransom to return stolen data. Cyber insurance covers such expenses, although some experts advise against paying ransom as it encourages more attacks.
5. Restoring customer identities
When a cyberattack occurs and customer identities are stolen or compromised, businesses can be left with a mess to clean up. That’s where cyber insurance comes in handy.
Cyber insurance can help cover the costs of restoring people’s personal identities after a data breach. This might involve providing credit monitoring services for affected customers or helping them deal with identity theft.
Get in touch with our cybersecurity experts now
What does the cybersecurity insurance policy not cover?
While cyber insurance is a valuable tool for protecting businesses’ digital assets, it’s important to understand that it doesn’t cover every possible risk and cost. Here are some common exclusions you might find in a typical cyber insurance policy:
1. Customer losses
While cyber insurance protects your own business from disruptions like hacking or cyberattacks, it doesn’t extend to cover the losses your customers might suffer.
Let’s break it down with an example.
Let’s say a travel company is a victim to a cyberattack. Its cyber insurance might help it cover the costs of fixing its systems and recovering lost data. But what about the customers who booked trips through them?
If the cyberattack causes losses due to disrupted travel plans or booking problems, the travel company’s cyber insurance typically does not cover those losses. The insurance is focused on protecting the business itself, not the customers who rely on it.
2. Weak security processes
Having weak security processes can leave your business vulnerable to attacks. These attacks often happen because of sloppy password management, outdated software, or not properly configuring security settings.
Poor security processes create opportunities for attacks to happen. For example, if your business doesn’t regularly update its software or neglects to install security patches, it basically leaves a window open for hackers to exploit. And when they do, it can lead to data breaches, financial losses, and damage to reputation—aspects not covered by insurance.
3. Cyber extortion
Cyber extortion is a scary new way cybercriminals try to make a quick buck. It’s similar to digital blackmail. The malicious actors access a company’s systems, lock up their data, and then demand money to unlock it through ransomware.
This kind of attack can be very damaging. Imagine what would happen if all your important files suddenly became inaccessible, and the only way to get them back is to pay up.
It’s not just the data you lose—the financial repercussions are just as damaging. And most cyber insurance plans won’t cover you in this situation. Why? Because it’s really hard to prove that the attack was the fault of an outsider and not because the company failed on security.
4. Any third-party vendor loss
Cybersecurity insurance can help cover the costs of recovering data if the company’s network gets attacked. But if a third party, like a vulnerability management provider you work with, gets hacked and loses data, your policy might not come to the rescue. That’s because most cybersecurity insurance plans typically focus on covering the direct costs that impact you and not those affecting third parties.
So, let’s say the company that manages your vulnerability scanning gets hit with a cyberattack, and your data is exposed. Your insurance policy probably won’t help cover the costs of getting your data back from them.
5. Intellectual property loss
Imagine you’ve invested time, effort, and resources into creating a unique idea only to find out later that someone else has stolen it and brought it to market as their own.
Losing valuable intellectual property (IP) can be a big blow to businesses, but many only realize they’re at risk once it’s too late.
Most cyber insurance policies won’t cover the loss of value caused by IP theft. So, even though your business might suffer significant financial losses because of it, you’re often left to deal with the fallout on your own. This is because businesses don’t even realize it’s happened until they see their competitors profiting from their stolen ideas.
6. Losses incurred during the time deductible
When a cyber-attack hits, it doesn’t waste any time causing chaos. But just like with health or auto insurance, where you have to pay a certain amount before coverage kicks in, cyber insurance often has something called a time deductible.
According to experts, this waiting period usually lasts between 8 and 12 hours. If your business manages to bounce back and get everything back to normal within that time frame, your insurance won’t help cover the costs.
7. System upgrades
When a business faces a data breach, it often means they needs to make some serious upgrades to their systems to prevent it from happening again. This can involve getting new computers, switching servers, updating software, and ramping up cybersecurity measures.
So insurance companies to cover the expenses for these upgrades.
In short, cyber insurance policies aren’t designed to make your systems better than before the attack. Instead, they’re meant to help you get back to where you were pre-breach..
8. Future profits
While cyber insurance is great for helping businesses recover from the immediate costs of a breach, like legal fees and customer notifications, it won’t necessarily cushion the blow of any future financial losses caused by reputational damage.
9. Human error
Human error is a common culprit behind cyber attacks. For example, an employee at work may accidentally click on a suspicious link in an email. This kind of human error can have serious consequences for organizations, leaving them vulnerable to hackers and cybercriminals.
Human error isn’t just clicking the wrong link or forgetting to update your password. It can also involve things like mishandling sensitive information, sharing passwords with unauthorized individuals, or falling victim to social engineering attacks like phishing scams.
In fact, studies have shown that a significant number of cyber attacks are caused by human error within organizations. This can include everyone from employees to executives, highlighting the importance of cybersecurity training and awareness programs to educate staff about the risks and how to avoid them.
10. Breach from pre-existing vulnerabilities
Organizations often know about weaknesses in their systems, like outdated software or unpatched security flaws, but they don’t do anything about it. They might think, “Oh, it’s not a big deal,” or “We’ll fix it eventually.” But the longer they wait, the more vulnerable they become to cyber attacks.
You’re basically inviting trouble.
And trouble does come knocking when hackers exploit those pre-existing vulnerabilities to break into your systems and steal your data.
However, when a breach happens because of a pre-existing vulnerability, organizations can’t just blame bad luck since they had the chance to fix the problem beforehand but failed to do so. Hence, cyber insurance policy doesn’t cover such incidents.
Reviewing cyber insurance? Consult our experts to ensure comprehensive protection
How much does cybersecurity insurance cost?
On average, small businesses pay around $145 per month for cyber insurance, which adds up to approximately $1,740 annually.
However, the amount of cyber insurance you must pay depends on your company size, type of industry, amount of sensitive information you handle, annual revenue, strength of security measures, coverage level, and deductibles.
How to choose the right cybersecurity insurance policy?
Choosing the right cybersecurity insurance policy depends on a lot of factors, starting from your company status and the possible risks you’ll face. However, not all providers are the same in providing financial protection for digital assets.
Here are some of the things you need to consider before choosing a cyber insurance policy:
1. Weigh the risks against the premium prices
Sometimes, the excess you must pay before your insurance kicks in might be more than the cost of dealing with the cyber attack on your own. In those cases, it might make more sense to handle the situation outside the insurance process, perhaps by seeking help from a specialized third party.
However, in the face of large-scale cyber attacks, many organizations have found that the support they receive from insurers is invaluable. This support often comes in the form of expertise and financial assistance, helping businesses get back on their feet faster.
Talk to the vendor about this before finalizing the coverage.
2. Is it customizable?
Next, understand what kind of policies are available and how they can be tailored to your organization’s needs.
Does the insurance company offer standalone cyber insurance policies, or is the coverage simply added onto an existing policy? Standalone policies are usually the way to go because they’re more comprehensive and specifically designed to address cyber risks.
Not all cyber insurance policies are created equal. Every business is different, and what works for one might not work for another.
For example, a small online retailer might have cybersecurity needs that are different from those of a large financial institution. That’s why customizable policies are key—they allow you to tailor your coverage to match your specific risks and budget.
3. Check the deductibles
The deductible is the amount of money you have to pay before your insurance kicks in and starts covering the rest of the costs. So, if you have a $500 deductible and you make a claim for $1,000, you’ll have to pay $500 yourself, and the insurance company will cover the remaining $500.
4. Understand coverage limitations to third-party vendors
Cyber attacks are not limited to destroying your business but also disrupt the operations of service providers and other vendors. For instance, say that if a cyber attack on your company affects a third-party service provider’s systems or data, then you’ll want to know if your policy covers it.
Moreover, you can also verify if the service providers you work with have their own cyber insurance. It may also affect your ability to come to an agreement with them and how you’ll deal with any cyber security incident that may come up.
5. Find the right insurer
When you’re in the market for cyber insurance, finding the right insurer makes all the difference.
You want to partner with an insurer who understands your business’s unique risks and exposures in the digital world. You want an insurer who will work with you to develop a tailored cyber insurance policy that meets your specific needs and helps you mitigate the risks you face.
For example, if your business deals with a lot of customer data, you’ll want an insurer who understands the importance of protecting that data and can provide coverage for data breaches and identity theft.
6. Consider the price tag
Just like with any other type of insurance, cyber insurance comes with a price tag. But figuring out how much you should budget for it can be tricky. It depends on factors like the size of your business, the industry you’re in, and the level of risk you face.
Cyber insurance premiums can vary widely depending on your coverage and the insurer you choose. Some policies are more affordable but offer less coverage, while others cost more but provide more comprehensive protection. Hence, consider what risks your business faces and what coverage would best protect you.
7. Type of coverage you need
Start by precisely pinning down the exact insurance coverage that your business requires. Cyber-insurance does not have a single flavor but has different types tailored to tackle different risks and expenses.
For instance, cyber insurance can reimburse for the costs the business may have to consider if it experiences a cyber attack.
This might be a decline in revenue, surplus expenses to be back online, and the possibility of hiring experts to help with recovery, although not readily available. Moreover, some other measures are particularly created to be the financial cost of the lawsuits related to a data breach.
Key benefits of cybersecurity insurance
The key benefits of cybersecurity insurance start from financial protection and defending against legal repercussions. With that being said, here are some of the benefits you can expect from picking one:
1. You’ll get business interruption coverage
Cyber insurance can help cover the costs of restoring your systems online, restoring lost data, and implementing security measures to prevent future attacks. With business interruption coverage in place, you can focus on getting your business back on track without worrying about the financial impact of a cyber-attack.
2. Risk management services
Cyber insurance providers often go the extra mile to help bolster your business’s cybersecurity defenses. They offer a range of risk management and prevention services that are designed to keep your business safe from cyber threats.
3. Financial protection
Protecting against financial losses is crucial for the stability and success of any business.
For example, cyber insurance can help cover the costs you incur while recovering from a cyber attack, such as legal fees, data restoration, and business interruption expenses.
4. Air-tight legal protection
A business with legal protection should be the priority. Cyber Insurance assists in meeting the costs of legal defense, settlements, or judgments when your company is impleaded in court because of a cyber-incident.
Whether it’s the defense against charges of negligence in protecting confidential information or obtaining compensation from the affected people, cyber liability insurance is designed to help save your business from costly finances and undesirable economic impact.
But it’s not just about financial protection; it also gives you relief that if something happens, there is a solution at hand. Knowing you have legal protection can alleviate the stress and uncertainty of facing legal challenges after a cyber attack.
Ready to take your first towards cyber insurance?
Don’t put off getting cyber insurance until it’s too late. Waiting until after a cyber attack strikes to get cyber insurance can leave your business vulnerable to significant financial losses.
While cyber insurance is a great option for minimizing the impact of cyber threats, what’s better is if you have a tool that keeps vigilant and helps you prevent such incidents from even happening.
Sprinto, a continuous monitoring platform, can help you manage cyber risks proactively. It provides real-time monitoring and automated communication capabilities, which allow you to monitor your assets and security controls around the clock.
The platform helps you identify vulnerabilities and failing controls while enabling you to take corrective action and minimize threat exposure.
Ready to take the next step? Speak to our experts today.
FAQs
What is tech cyber insurance?
Tech cyber insurance, also known as cyber liability insurance, is a safety net for online businesses. It provides coverage for your organization’s liability in the event of a data breach caused by a cyber security incident. This means that if your business experiences a cyber attack that results in a breach of sensitive information, cyber insurance can help cover the costs associated with managing the aftermath.
Is cyber insurance a good investment for businesses?
Yes, cyber insurance is a good investment for businesses of all sizes. It’s because it provides financial protection and peace of mind without question.
Who can take cyber insurance?
If your business creates, stores, or manages electronic data online, you could be at risk of a cyber attack. And in today’s digital age, sensitive customer data like contact numbers, sales records, personally identifiable information, and credit card numbers are prime targets for cybercriminals.