What is Cyber Security Insurance and which Businesses Need it?

With the increasing digital adoption in the pandemic, cyberattacks are also on the rise. It is estimated that cybercrimes shot up by 600% in the pandemic.

Cyber attacks cost millions in losses, damage company reputation, and might also compel you to shut your business. Cybersecurity insurance, also known as cyber liability insurance protects you against such risks by providing financial assistance in the event of a cyber attack.

What is cybersecurity insurance and why is it important?

Cybersecurity insurance is a contract where an insurer agrees to cover the financial losses your company might face in case of a data breach or a cyberattack. Typically, cybersecurity insurance for small businesses provides financial assistance for ransom payment, lawsuits, legal fees, risk assessment, revenue loss, denial of service, regulatory fines, etc.

According to an IBM report of 2021, an organization incurs an annual loss of $4.24 million per cyber attack incident. The consequences of cyber intrusions do not stop here.

In case of a cyberattack, your company's reputation and intellectual property are at risk. You also need to face regulatory fines and at worst, your business might never recover from the attack forcing you to shut your operations. Cybersecurity insurance protects your business from all such consequences by providing you financial cover to bear the costs of the cyber intrusion.

How to secure your business against cyber attacks?

Proactive measures go a long way to minimize the losses in case of a cyber attack. First things first, create strong passwords and change them at spaced intervals and then update your security software regularly.

You should also implement robust cybersecurity protocols that monitor your IT operations for any suspicious activities round the clock. To determine the level of protection a set of data requires, you can classify data into categories like confidential, business-critical, intellectual property, customer financial data, etc.

Employee error is amongst the most common causes of data breaches. Train your employees in matters of cybersecurity to avoid social engineering, and phishing, among other attacks. Creating a privilege hierarchy where only required employees can access certain data and passwords is also necessary.

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Do I really need cybersecurity insurance?

Most certainly. If your business stores sensitive data including credit card numbers, email addresses, phone numbers, Social Security numbers, etc., you need cybersecurity insurance to combat the risks of a cyber intrusion.

You might think you don't need cyber liability insurance as you have advanced security protocols in place. This is not true. You need both proactive measures (security policies) as well as a response mechanism (cybersecurity insurance) to deal with cyber crimes.

Small businesses are often more susceptible to cyber attacks than larger businesses as they are comparatively easy targets. An employee of a small enterprise faces 350% more social engineering attacks than an employee from a large business.

As per Verizon's Data Breach Investigations Report stated that 28% of data breach attacks involved small businesses. Unfortunately, a majority of small businesses fail to recover from cyberattacks. An Inc report claims 60% of small businesses shut their operations within six months of a cyberattack.

Which cybersecurity insurance coverage should I opt for?

There are mainly three types of cybersecurity insurance coverage.

1. First-Party coverage

First-party cybersecurity insurance coverage covers the direct costs of a cyberattack.

Based on your insurance provider policies, first-party coverage can include the following:

Investigating the incident and helping with regulatory compliance
Ransom payments within the policy limits
Paying business interruption costs, such as hiring additional staff, renting equipment, or buying third-party services
Notifying affected customers about the cyber attack
Providing affected customers with anti-fraud services including customer credit and fraud monitoring
Hiring public relations firm for crisis management

2. Liability coverage

Liability coverage or third-party cybersecurity insurance coverage covers the costs of lawsuits when your customers or affected third-party services sue your business.

Third-party coverage generally includes:

Legal fees
Regulatory fines
Settlements
Court judgments

3. Technology errors and omissions (E&O)

If you produce a technology product or provide technology services, you might want to get a technology errors and omissions policy. Tech E&O offers financial coverage if your technology product resulted in a cyber attack directly affecting your customer or third-party. Say, you wrote a software program that had a bug which resulted in a data breach compromising your customer's sensitive information. In this case, you would need Tech E&O coverage.

Technology E&O policy offers similar coverage as that of liability insurance such as legal expenses as well as judgements and settlements.

Please note that cybersecurity coverage does not cover all costs. Expenses like hardware damages, intellectual property loss, self-inflicted cyberattacks, and measures to avoid future cyber intrusion are not covered by cybersecurity insurance.

How much cybersecurity insurance coverage does my business need?

The premiums you pay for your cyber liability insurance will depend on the type of coverage you buy and the risks covered. Typically, the cost of cybersecurity insurance for small business relies on factors like amount of sensitive data handled by the business, number of employees, coverage limits, and the industry the business operates in.

According to AdvisorSmith, the average cost of cybersecurity insurance coverage in the U.S. was $1485 per year in 2020 for a $1 million coverage with $10,000 deductible. Deductible is the amount your business needs to cover in case of a cyber intrusion. Say, a cyberattack causes a damage of $60,000 to your business. In this case, you will get an insurance check of only $50,000 ($60,000 minus $10,000 deductible).

Moreover, cyber liability insurance also comes with limits for coverage. For instance, say your cybersecurity insurance has a limit of $30,000 for legal costs. Now, if your legal costs shoot up to $40,000 in case of a cyber incident, you will have to pay $10,000 from your pocket.

Secure your business with Northriver Cybersecurity solutions!

Northriver cybersecurity solutions provide an all-in-one security cover for your IT operations. From securing your network, endpoint, and cloud environment, to identity threat protection, we safeguard every part of your business. Get in touch with us today and secure your organization from all kinds of cyber attacks.