Insurance

Cyber Liability Insurance: Why Your Business Needs Cyber Liability Coverage

January 5, 2024

A lot of Businesses Needs Cyber Liability Coverage. The internet has connected the world like never before. Today, businesses, large and small, rely on online tools and technology to operate, market themselves, and engage with customers.

We all know that the convenience of the recent digital world comes with significant risks. It is because Cyberattacks and data breaches can damage a company’s finances, reputation, and customer relationships.

That’s why cyber liability insurance has become essential for businesses aiming to mitigate cyber risks.

What is Cyber Liability Insurance?

Cyber liability insurance, also known as cyber risk or cyber insurance, is a type of business insurance product designed to help companies manage risks associated with electronic data, computer networks, and other internet-related risks.

It provides protection against a variety of cyber incidents like data breaches, cyber extortion, hacking attacks, online fraud, and more.

Cyber liability policies assist businesses with the costs involved in recovering from a cyberattack, such as:

Legal expenses related to defense, settlement, or compliance
Crisis management and public relations to repair brand reputation
Notification costs to inform customers of a data breach
Credit monitoring services for affected customers
Forensic investigations to determine the cause and extent of an attack
Business interruption losses from network downtime

In addition to covering first- and third-party costs tied to cyber incidents, some cyber liability insurance policies also include coverage for:

Cyber extortion payment and negotiation
Regulatory fines, penalties, and assessments
Hardware replacement or data recovery/restoration
Cyber terrorism
Media liability related to copyright infringement, libel, and plagiarism

Why Your Business Needs Cyber Liability Coverage

Cyberattacks and data security incidents are growing threats, making cyber liability coverage a necessity for businesses today.

According to the Identity Theft Resource Center, the number of U.S. data breaches tracked in 2019 increased 17% over the previous year. And that’s likely only the tip of the iceberg, as many breaches may go unreported.

Some key reasons why cyber insurance is critical:

Data Breaches Are Common

Despite best efforts at prevention, data breaches are routine occurrences today. A breach means customer and company information has been accessed or stolen by unauthorized individuals.

Without cyber insurance, businesses must bear the full costs of investigating a breach, notifying customers, providing credit monitoring services, defending potential lawsuits, covering regulatory fines, and restoring systems and data. These expenses can quickly total hundreds of thousands or even millions of dollars.

Customers Demand Data Security

Consumers are increasingly concerned about how their personal and financial information is safeguarded.

Cyber insurance shows customers you take data security seriously and have a plan to limit harms if a breach does occur. This protects your reputation and customer retention.

Laws and Regulations Are Expanding

More states and municipalities are enacting strict regulations around data privacy and breach notification rules.

There are also new regulations like the EU’s General Data Protection Regulation that apply to any company handling data of EU citizens. Having cyber insurance ensures you have resources to comply with rapidly emerging cybersecurity laws.

Cyberattacks Are Highly Sophisticated

Hackers and cyber thieves have an ever-evolving array of technological tools at their disposal, making cyberattacks more advanced than ever before.

Even small businesses with limited IT infrastructure are vulnerable. Cyber liability insurance is essential preparation for modern cyber risks.

You Rely on Third-Party Vendors

Most businesses utilize the services of third-party vendors for critical functions like data storage, payment processing, cloud hosting, payroll systems, etc.

If one of those vendors experiences a breach that compromises your data, you could suffer major fallout without cyber insurance protection.

Cyber Liability Insurance Coverage Options

Cyber liability policies are not one-size-fits-all. Coverage options and limits vary significantly across providers.

Work with an experienced broker to review your risks, regulations, and budget to find the right policy for your needs. Here are some of the most common coverage options to look for:

Third-Party Liability Coverage

If a breach of your systems results in harm to third-parties like customers or business partners, this coverage protects you against their claims for damages.

Lawsuits, settlement costs, judgements and legal defense expenses are covered.

First-Party Liability Coverage

Unlike third-party, first-party coverage applies to losses your own business directly sustains from a covered cyber incident.

Costs could include investigation, notification and credit monitoring for customers, public relations, business interruption losses and more.

Extortion Coverage

Cyber extortion campaigns like ransomware attacks are a rising threat.

Extortion coverage pays for the ransomware demand as well as negotiation costs if impacted systems need to be unlocked.

Crisis Management/Public Relations Coverage

Reputational harm is a major consequence of cyberattacks. PR coverage pays for communications and marketing efforts to rebuild your brand image and restore trust after a breach.

Regulatory Fines and Penalties

If your business is investigated and fined by regulators for violating data protection regulations, cyber insurance can cover those costs. This is critical given large state and federal fines.

Forensic Investigation Coverage

These Forensic experts are often required to fully diagnose a cyberattack and ensure systems are restored with enhanced security. The Forensic coverage pays their costs.

Credit Monitoring Coverage

Providing customers with credit monitoring services after a breach containing financial data or personally identifiable information is standard practice today. Credit monitoring coverage pays for this expense.

What Cyber Liability Insurance Does Not Cover

While cyber insurance covers a wide range of cybersecurity risks, it’s important to understand common exclusions where the insurer will not pay claims:

Criminal acts: Deliberate data theft or hacking by your employees is typically excluded.
Unencrypted data: If sensitive data and records are not encrypted as required by the policy, claims may be denied.
Contractual liability: Indemnity clauses in contracts that make you liable for third-party data breaches will often not be covered.
War/terrorism: Cyberattacks stemming from foreign adversaries and military conflicts are sometimes excluded or have limited coverage.
Infrastructure failures: Outages caused by software flaws or the failure of network infrastructure are generally not covered.
Policies without cyber coverage: Property, liability, and other policies must specify cyber coverage to pay data breach claims.

Top Cyber Insurers

The cyber insurance market is served by many carriers. Top insurers include:

AIG: Offers stand-alone cyber policies plus add-on coverage to general liability policies. Coverage includes forensic investigation, cyber extortion, PR crisis management, and data restoration.
Chubb: Provides comprehensive cyber insurance for data breach response, privacy liability claims, cyber extortion, business interruption, and network damage among other areas.
Travelers: CyberChoice insurance offers a range of plans from data breach expenses to full multimedia coverage. Services include risk management tools and post-incident support.
The Hartford: CyberChoice provides protection against data breaches, ransomware, cyber theft and fraud, and technology failures. The Hartford’s risk engineering experts provide cybersecurity guidance.
CNA: Offers cyberrisk protection for industries from healthcare to financial services. Coverage includes forensic investigation, legal services, customer notification, and public relations crisis management.

How Much Does Cyber Insurance Cost?

Cyber insurance premiums vary based on business size, industry, revenue, data volume, security infrastructure, and other factors assessed through an underwriting process. However, most policies range from $500 per year for micro-businesses to tens of thousands of dollars annually for larger enterprises. Certain high risk industries like healthcare and financial services tend to have the highest premiums.

To determine your potential cost, provide your insurance broker with details about:

Company revenue, number of records, network size, and locations
Compliance with security standards like PCI DSS or HIPAA
Past cyber incidents and losses
Use of IT security tools like firewalls and encryption
Reliance on vendors and third-party data processors
Applicable regulatory requirements

Tips for Finding the Best Cyber Insurance

Follow these best practices when shopping for cyber insurance to ensure you get adequate, cost-effective coverage:

Work with an insurance broker experienced in cyber policies. They can explain options and get quotes from multiple carriers.
Align coverage limits with potential liability. Include legal liability, crisis management, regulatory fines and other coverages.
Seek policy limits that scale with business growth. Avoid static limits that cap coverage.
Ask about risk mitigation tools included in policies like access to cybersecurity experts.
Inquire about exclusions and sub-limits to avoid gaps in coverage.
Consider adding extra identity theft and cyber extortion coverage.
Add cyber coverage to general liability policies too for added protection.
Get quotes from several carriers before selecting a policy.
Review policy language for clarity of covered cyber events.
Report cyber risks thoroughly during underwriting to avoid denial of claims later.

Conclusion

Cyber liability insurance provides an essential safety net for when cyber incidents strike. It offers financial protection and expert assistance to respond to data breaches, hacking, online fraud and other digital threats.

As cyber risks accelerate, informed businesses are utilizing cyber insurance as part of a multi-pronged approach for managing cybersecurity.

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