Cyber Liability Insurance 101: What is It and Do You Need it?

Today, there is almost no organization that doesn’t use computers to send, receive, or store data. Thousands of essential data and other company documents, including tax recording or sales information, can be lost, damaged, or stolen because of a security breach. The consequences of cyber breaches are usually vast and costly.

The reason for this is mainly because data breaches today may also cause third-party claims or lawsuits if they involve personally identifiable information, like health records or social security numbers. That’s why cyber insurance can be a smart move for businesses of all sizes. 

Here’s what you need to know about cyber insurance coverage and how to get the most of it. 

A man using two computers to work.

What is Cyber Liability Insurance?

Cyber liability insurance covers losses that come from cyber events such as data breaches. Most insurance companies offer cyber coverage policies they’ve developed themselves, which is why there are many different policies. However, most cyber security insurance policies include first-party and third-party coverages.

First-party cyber liability insurance covers out-of-pocket fees that a company directly incurs as a result of a breach. Third-party-coverages, on the other hand, cover damages and settlements that an organization has to pay due to claims or suits for injuries that result from the company’s action or failure to act. 

Let’s say a patient sues his doctor for negligence after their treatment records are stolen. They could sue the doctor after the data breach, which could be a big financial hit for the business. 

What Are the Four Main Covers Under Cyber Liability?

Because cyberattacks are costly and can take a long time to resolve, cyber liability insurance coverage can help you pay for:

  • Mandatory notification of the parties that were affected
  • Investigating and fixing security issues
  • Loss of business opportunities
  • Several years of credit monitoring services for affected customers

Cyber Insurance Coverage for Costs of a Breach

While there are many different policies out there, here are some first-party coverages that are usually included in cyber liability policies:

  • Data Restoration: This coverage pays for the costs to replace or restore programs, software, or electronic data damaged or destroyed by a hacker attack or a virus.
  • Cyber Extortion: This coverage is useful if a ransom was paid to a hacker who breached the company’s system. Usually, policies cover all extortion payments made with the insurer’s consent along with other expenses such as the cost of hiring an expert to negotiate with the hackers. 
  • Loss of Income and Extra Fees: This coverage pays for income losses sustained by a business and additional fees incurred to restore its operations after a shutdown caused by a hacker attack, a virus, or some other peril. 
  • Crisis Management: This coverage pays for crisis management expenses such as paying an attorney, forensic accountant, computer expert, or public relations expert to assess the scope of damage and help restore the loss as well as protect the company’s reputation. 

Why Do Small Businesses Need Cyber Liability Insurance?

 

Just like big organizations, small businesses can also get hurt in cyberattacks and expensive data breaches. Also, small companies often have weak cybersecurity, which makes them great targets for such breaches. 

That’s why cyber security insurance for small businesses isn’t just something that’s nice to have. Because cyberattacks can financially destroy any business, cyber insurance coverage can help you recover from financial losses caused by these unfortunate events. 

Do I Need Cyber Liability Coverage?

If your business handles and stores sensitive and private information, you need cyber insurance coverage. This policy is beneficial for companies that handle credit card numbers, email addresses, phone numbers, medical information, and companies that operate in cybersecurity, or work in the cloud. That said, hackers often target retailers, healthcare organizations, and financial service providers. However, keep in mind that any business can be a victim of a data breach. 

Security breaches, phishing emails, malware, and computer system breakdowns are just a few examples of the types of cyber risks that could cause your business serious losses and liability.

One such example is the Wawa data breach that happened in 2019 when jackets stole credit and debit card payment information from all 860 stores. Shortly after, hackers placed the payment details for sale on an Internet forum for credit card fraud. 

In 2017, Equifax, a consumer credit reporting agency, was attacked by hackers and exposed the personal information of 147 million people. Two years later, Equifax settled with the US Federal Trade Commission. As a part of it, the company had to spend $425 million to provide free credit reporting and cash payments as reimbursement for time or money spent on recovering from identity theft and free identity restoration services. 

Another similar situation happened in 2020 when hackers used the Twitter accounts of famous people to send requests for bitcoin donations to anonymous addresses. They managed to receive more than 400 responses and stole bitcoin worth $121,000.

What Is the Difference Between Cyber Liability and Data Breach Insurance?

In short, cyber liability insurance covers financial losses from a data breach and provides legal protection. Data breach insurance, on the other hand, only protects the financial interests of an organization. Data breach policies cover expenses that result from informing affected parties to minimize the damage. This includes offering these parties access to credit monitoring or assistance hotlines. 

How Much Does Cyber Liability Insurance Cost?

Cyber insurance coverage costs depend on various factors, such as your policy limits and how much sensitive data your business handles. According to an AdvisorSmith Solution Inc. study, the average cost of a cyber liability policy in 2019 was $1,500 per year for $1 million in coverage. 

One of the best ways to get a more affordable policy is to shop around and talk to insurance agents before you make a final decision. However, keep in mind that these factors usually affect the price of your cyber liability policy:

factors that impact cyber liability policy costs

Ransomware, phishing emails, data breaches, and other types of cyberattacks are widespread today, and any company, regardless of its size and industry, can be the next victim. Because cyber risks are so prevalent, it is always a good idea to think one step ahead and keep your valuable business assets safe. For that reason, cyber liability insurance is something every organization should think about having.

Did you find this article helpful? If so, make sure you also read more about data breach insurance!

 

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