TL;DR
- Cyber insurance protects businesses from financial losses related to cyber attacks.
- Cyber insurance policies should cover first-party and third-party losses, business interruption, social engineering, and provide access to cybersecurity risk management services.
- Cyber insurance policies don’t cover losses resulting from intentional acts, unapproved actions, poor cybersecurity practices, or failure to comply with regulations.
- Choose a cyber insurance partner with experience, financial stability, and commitment to customer service.
- Equifax data breach demonstrates the importance of having cyber insurance.
As technology becomes more integrated into our daily lives, businesses have been forced to adapt and change the way they operate. One major aspect of this shift is the increased risk of cyber attacks. In order to mitigate these risks, businesses have started to turn to cyber insurance. In this article, we will explore what cyber insurance is, why companies need it, what should be included in a policy, and what cyber insurance does not cover. In addition, we will also help you find a quality Cyber Insurance agency and provide a real case of the destruction of a company that is negligent to the company’s cyber insurance.
What is Cybersecurity Insurance?
Cyber insurance is a type of insurance policy that provides financial protection for businesses in the event of a cyber attack or data breach. This type of insurance can cover a wide range of costs associated with a cyber attack, including legal fees, notification costs, business interruption losses, and reputational damage. Cyber insurance policies can also cover first-party losses, which refer to losses that directly impact the business, as well as third-party losses, which refer to losses suffered by customers or other third parties as a result of the breach..
Statistics show that the need for cyber insurance is growing rapidly. In 2020, the number of cyber attacks increased by 300% compared to the previous year, and the average cost of a data breach was $3.86 million. Additionally, small and medium-sized businesses are particularly vulnerable to cyber attacks, with 43% of attacks targeting them specifically.
Despite the growing need for cyber insurance, many businesses still do not have coverage. In fact, a recent study found that only 34% of businesses have purchased cyber insurance. This is concerning, given that the cost of a cyber attack can far outweigh the cost of cyber insurance premiums.
Why do company need cyber insurance?
Companies need cyber insurance to protect themselves from the financial and reputational damage that can result from a cyber attack. Cyber attacks are becoming increasingly common and sophisticated, and they can result in a range of losses, including:
- Business interruption: A cyber attack can cause a business to shut down or experience a disruption in operations, resulting in lost income and other expenses.
- Data breach: A cyber attack can result in the theft or exposure of sensitive data, such as customer information or intellectual property, which can lead to costly notification and legal fees, as well as damage to a company’s reputation.
- Cyber extortion: A cyber attacker may demand payment in exchange for not releasing sensitive information or disrupting a company’s operations, resulting in extortion payments and related expenses.
- Cybercrime: A cyber attack may result in the theft of money or other assets, leading to financial losses.
Here are some reasons why companies need cyber insurance:
- Cyber attacks are becoming more frequent and sophisticated, and it is difficult for companies to prevent them entirely. Cyber insurance provides a safety net in case a cyber attack occurs.
- Cyber attacks can cause significant financial losses, including lost income, legal fees, and damage to a company’s reputation. Cyber insurance can help cover these costs.
- Cyber attacks can affect companies of all sizes and in all industries. No company is immune to the risks of a cyber attack.
- Cyber insurance can help companies comply with regulatory requirements related to data protection and cyber security.
From the explanation, we know that cyber insurance is a crucial component of any company’s risk management strategy. With cyber attacks on the rise and the potential for significant financial losses, it is more important than ever for companies to consider purchasing cyber insurance to protect themselves and their customers.
Read More : 10 Cybersecurity Myths
What should be included in cyber insurance?
Cyber insurance policies should include a range of coverage to protect against the various risks associated with cyber attacks. Here are some key elements that should be included in a comprehensive cyber insurance policy:
- Business interruption coverage: This coverage provides reimbursement for lost income and extra expenses incurred as a result of a cyber attack that causes a business interruption.
- Data breach coverage: This coverage provides reimbursement for costs related to a data breach, including notification expenses, credit monitoring, and legal fees.
- Cyber extortion coverage: This coverage provides reimbursement for extortion payments and related expenses, such as the cost of hiring a security consultant.
- Cybercrime coverage: This coverage provides reimbursement for losses related to theft of money or other assets as a result of a cyber attack.
- Network security liability coverage: This coverage provides protection against claims arising from a failure to prevent unauthorized access to or use of a computer system.
- Privacy liability coverage: This coverage provides protection against claims arising from a failure to protect confidential or personal information.
- Crisis management coverage: This coverage provides reimbursement for expenses related to public relations, crisis management, and other measures taken to mitigate the damage caused by a cyber attack.
Statistics show that many companies do not have adequate cyber insurance coverage. In fact, a recent survey found that 70% of companies that experienced a data breach in 2020 did not have adequate cyber insurance coverage. Additionally, the same survey found that many companies do not understand their cyber insurance policies and the coverage they provide.
What does cyber insurance not cover?
While cyber insurance can provide important protection against the financial and reputational damage caused by a cyber attack, it is important to understand that there are some things that may not be covered by a cyber insurance policy. Here are some examples of what cyber insurance may not cover:
- Cyber attacks caused by employees: Some cyber insurance policies may not cover losses caused by intentional or negligent acts of employees.
- Damage to physical property: Cyber insurance policies generally do not cover physical damage to property, such as damage caused by a cyber attack on industrial control systems.
- Loss of intellectual property: While cyber insurance policies may cover the costs associated with a data breach, they may not cover the value of lost intellectual property.
- Business losses not directly caused by a cyber attack: Cyber insurance policies generally only cover losses that are directly caused by a cyber attack, and may not cover losses caused by other factors such as natural disasters or market conditions.
- Cyber attacks that occurred before the policy was purchased: Cyber insurance policies generally only cover losses that occur after the policy has been purchased.
Statistics show that many companies do not fully understand the scope of their cyber insurance coverage. In fact, a recent survey found that only 29% of companies with cyber insurance were confident that their policies covered all of the risks they faced.
It is important for companies to carefully review their cyber insurance policies and understand what is and is not covered. Companies should also work with their insurance providers to identify any gaps in coverage and take steps to mitigate these risks.
In addition to having cyber insurance, companies should also take proactive measures to prevent cyber attacks from occurring in the first place. This includes implementing strong security measures, such as firewalls, encryption, and employee training, as well as conducting regular risk assessments to identify potential vulnerabilities.
How to Choose The Right Cyber Insurance Partner?
Choosing the right cyber insurance partner is an important decision for any company looking to protect itself against cyber risks. Here are some factors to consider when selecting a cyber insurance partner:
- Coverage: The first consideration when choosing a cyber insurance partner is the scope and extent of coverage offered. Companies should look for a policy that provides comprehensive coverage for the specific risks they face, including business interruption, data breach response, and liability protection.
- Policy limits: It is also important to consider the limits of the policy, which determine the maximum amount of coverage available in the event of a cyber incident. Companies should ensure that the policy limits are sufficient to cover their potential losses and liabilities.
- Deductibles: Cyber insurance policies typically include deductibles, which represent the amount that the insured company must pay out of pocket before the policy kicks in. Companies should consider the deductible amount when selecting a policy, as a higher deductible may result in lower premiums but also higher out-of-pocket costs in the event of a cyber incident.
- Reputation and experience: When selecting a cyber insurance partner, companies should consider the partner’s reputation and experience in the industry. This may involve researching the company’s financial stability, claims handling procedures, and overall track record.
- Pricing: The cost of a cyber insurance policy is an important consideration, but should not be the only factor. Companies should compare pricing across different insurers and policies, but should also consider the level of coverage and service provided.
Equifax: A Memorable Failure because of Lack of Cyber Insurance.
One example of a company failure due to lack of cyber insurance is the 2017 Equifax data breach. Equifax, one of the three major credit reporting agencies in the United States, suffered a massive data breach that exposed sensitive personal information of approximately 147 million individuals. The breach resulted in a significant financial impact on Equifax, including legal fees, customer restitution, and reputational damage.
Here are some of the key factors that contributed to the failure of Equifax to adequately protect against cyber risks:
- Inadequate security measures: The Equifax breach was caused by a vulnerability in the company’s web application software. Equifax failed to adequately patch the vulnerability, despite being notified of the issue two months prior to the breach. This highlights the importance of implementing robust security measures to prevent cyber attacks.
- Lack of cyber insurance: Equifax did not have a cyber insurance policy in place at the time of the breach, which left the company vulnerable to significant financial losses. Without insurance, Equifax had to bear the full cost of legal fees, customer restitution, and other expenses associated with the breach.
- Delayed response: Equifax was criticized for its slow and inadequate response to the breach. The company took six weeks to publicly disclose the breach, which allowed cyber criminals to continue accessing the compromised data. This highlights the importance of having a comprehensive incident response plan in place to quickly and effectively respond to cyber incidents.
- The Equifax breach serves as a cautionary tale for companies of all sizes and industries. It highlights the need for robust cybersecurity measures and the importance of having a comprehensive cyber insurance policy in place.
According to a 2018 survey conducted by the Ponemon Institute, only 31% of companies in the United States have a standalone cyber insurance policy. This is despite the fact that the average cost of a data breach in the U.S. is $8.19 million, according to the 2019 Cost of a Data Breach Report by IBM Security.
Conclusion
In conclusion, cyber insurance is a crucial tool for businesses to mitigate financial risks related to cyber attacks and data breaches. Policies should cover a range of losses, but it’s important to understand what’s not covered, and to choose an experienced and financially stable insurer. The Equifax breach highlights the importance of having cyber insurance. By investing in cyber insurance, businesses can better protect themselves and ensure they’re prepared to respond to a breach. Overall, cyber insurance is an essential part of any comprehensive risk management plan.