As cyber threats continue to evolve and become more sophisticated, businesses are looking for ways to mitigate potential financial losses caused by data breaches or cyber attacks. This is where cybersecurity insurance comes in. The global market is projected to rise from 7.60 billion US dollars in 2021 to 36.85 billion US dollars in 2028. This growth is being driven by the increasing prevalence of cyberattacks, as well as by the growing awareness of the importance of cybersecurity insurance among organizations. In this article, we delve into the concept of cybersecurity insurance, its importance, the coverage it provides, and how it plays a crucial role in a comprehensive cybersecurity strategy. Join us as we explore this essential safeguard in the digital world, helping you understand its benefits and how it can protect your business from potential cyber risks.
Understanding cybersecurity insurance: the important details
Cybersecurity insurance, also referred to as cyber insurance orcyber liability insurance, safeguards businesses from financial risks associated with cybercrime activities such as data breaches. The insurance policy transfers the risk to the insurance company after payment of a monthly, quarterly, or yearly premium.
This insurance covers business risks associated with cyber threats, which traditional insurance products and commercial liability policies don’t cover. It is an emerging trend, meaning its policies are constantly changing because of the dynamic nature of cyber risks. Given that this is a young industry, players are understandably grappling with the expected challenge of insufficient data to define risk models and calculate premiums. Of course this is how every industry grows, so there should be no worry about this. Things will eventually fall into place.
Cyber liability insurance has so far proven to be vital in protecting businesses against the financial risks of cyber threats. Businesses that handle sensitive customer data will find this insurance valuable to the extent of assuming obligational status. Remember that data loss or theft can impact a business negatively and result in huge financial losses. It’s something that serious businesses are not taking lightly. In fact, the general view across the IT landscape is that organizations ought to approach the question of cybersecurity insurance from the policy angle and not whether or not to take up cyber insurance. In other words the IT departments should be able to convince the decision makers and bring them to a level where they buy wholly into this emerging need. Luckily, it's not that difficult to see why it’s high time organizations embraced this insurance. Cyber threats are everywhere — it’s the most potent threat to the existence of any organization that depends on IT to keep operations going.
Also Read: The Latest Statistics on Cyber Crime
How does cyber insurance work?
Cybersecurity insurance works the same way mainstream insurance works. The only difference is that this time the business will be insured against risks that threaten the organization’s IT infrastructure. Such risks could be anything from natural disasters to dark web attacks and other types of network security threats including physical risks as long as they threaten the network. The insurance covers the financial loss a company would suffer in the event of a cyberattack. Most insurance companies that sell the traditional insurance products, such as commercial property and business insurance, are now offering cyber security policies.
In addition to covering losses resulting from cyber incidents and events, cyber insurance also covers the cost of investigators, customer refunds, legal costs, and remediation costs. Companies can also opt to buy third-party policies, which cover losses suffered by the third parties they work with.
Who needs cybersecurity insurance?
Businesses that store electronic data or process sensitive information need cybersecurity insurance. Sensitive information may include:
- Customer names and addresses.
- Financial information like bank accounts and credit card information.
- Social security numbers.
- Medical records.
E-commerce stores, for example, conduct most of their transactions online and store sensitive client information. Customers submit their sensitive data such as names and addresses then proceed to pay for purchases online. Such businesses can benefit from cyber insurance because a data breach on an e-commerce store can be detrimental.
However, cyber insurance isn’t meant for large companies and multinationals only. Small businesses are often an easy target for cybercriminals because most have a weaker cybersecurity posture compared to large companies. This vulnerability calls for startups, small and medium-sized enterprises to consider cyber liability for small businesses.
A report by Security Magazine reveals that more than 67 percent of companies with less than 1,000 employees have experienced a cyberattack, with 58 percent experiencing a breach. This shows that all businesses are at risk and therefore need cyber insurance. A cyberattack can lead to significant financial loss at an average cost of 200,000 US dollars.
What is covered by cybersecurity insurance?
Cybersecurity insurance covers the loss that a business suffers after a cyberattack. Traditional insurance products don’t cover cybersecurity risks, so cyber insurance was developed to fill the gap.
Depending on the type of policy and the premiums you pay, the insurance company will compensate for the theft of IT assets, physical destruction, and any other loss resulting from the cybersecurity breach. Such losses could include:
- Ransom payments the business makes to get back its data.
- Lost income due to the security breach.
- The cost of notifying customers that a breach has occurred.
- Employee and customer lawsuits because of privacy breaches.
- Restoring customer identities compromised during the breach.
- Public relations costs to restore the reputation of the organization.
- Regulatory fines.
- Hiring computer forensics to recover compromised data.
- Replacing or repairing damaged and compromised computer systems.
Recommended reading: How to deal with a ransomware attack
What's not covered by cybersecurity insurance?
Most policies don’t cover preventable security breaches caused by human error, carelessness, or inappropriate use of digital assets. Here are some common exclusions:
- Intentional acts of fraud or criminal conduct caused by your employees.
- Pre-existing cyber events of prior breaches that occurred before buying the policy.
- Infrastructure failures not caused by a cyber attack.
- Prior acts of knowledge, i.e. failing to correct a known vulnerability that results in an incidence.
- The cost of improving security systems.
- A cyber security incident on a subsidiary outside your control.
Please read carefully and understand your cyber insurance policy for any exclusion.
Also read: What is Cyber Vandalism?
Common types of cybersecurity insurance
As we started by saying, this type of insurance is still new and insurance companies are still in the early stages of structuring policies. But even as this happens, some policies are already taking shape.
These are the common types you’re likely to find in the current market:
Privacy liability coverage
Privacy liability insurance is suitable for businesses with privacy or information risks. Data breaches can expose sensitive customer and employee information and leave the company vulnerable to liability. Privacy liability insurance will protect a business from liabilities in case of violation of a privacy law, depending on the country or region where the business operates.
This coverage takes care of the following:
- Defending the business against customer class action lawsuits.
- Funding a settlement after a cyber incident.
- Legal expenses, fines, and penalties claimed by a government or law enforcement agency.
Network security coverage
Network security coverage protects a business from financial losses resulting from a network security failure. This policy protects a company's privacy and information in case of a network security breach.
Examples of network security failures:
The network security coverage will cover the following:
- The cost of notifying customers of the security breach.
- Cost of credit monitoring.
- Cost of data and identity restoration.
- Legal and IT forensic expenses.
- Cost of establishing a call center.
- Cost of public relations to restore the business’ reputation.
- Negotiation and payment of the ransom demanded.
Errors and omissions (E&O)
E&O coverage protects a business from cyber incidents that hinder it from fulfilling its contractual obligations. This is suitable for Managed IT service providers whose business model is based on custom contracts that govern the services they provide to clients. Clients may sue an MSP for failing to perform its contractual liability, such as failures and errors in delivering services. The E&O insurance will cover liabilities from such claims.
In the event of a dispute with a client or lawsuit, this policy will cover the legal defense costs.
Media liability coverage
This protects businesses from any liability or loss due to intellectual property infringement, apart from patent infringement. It covers printed and online advertising, inclusive of social media posts.
This policy is suitable for broadcasters, publishers, and other media-related companies. It covers named perils, including copyright infringement, invasion of privacy, defamation, and plagiarism.
Network business interruption coverage
This protects businesses from operational cyber risks. It’s ideal for companies that depend on technology to deliver services to clients. This policy covers lost profits, fixed expenses, and other costs incurred due to a computer network outage that prevents the company from rendering services. It also covers system failures from software attacks, human error, and failed software patches.
The challenge with cybersecurity insurance
Insurance companies are doing their best to develop risk models and determine premiums. They still use historical data, the type of industry, and a business's annual revenue. This model is not the best for the tech industry which is defined by a dynamic environment that is constantly battling an ever expanding threat landscape. Such an ecosystem means that cybersecurity insurance will take some time before it stabilizes. For now, organizations should pursue policies that are flexible enough to accommodate the unpredictable nature of cybersecurity.
Buying cybersecurity insurance: what should you consider?
- Risk tolerance: Assess your business' risk tolerance before settling on a suitable policy. Identify all the systems and digital assets you need to protect. One way to better understand your risk tolerance is to categorize all your business elements. Separate the must-to-have elements from the nice-to-have elements. This will refine your decisions and help you pick a policy that covers all your critical systems.
- Insurance cost and deductibles: Like any other insurance, such as property and health insurance, cybersecurity insurance has premiums that must be paid. Furthermore, there is a deductible that you are responsible for in case of a loss. Take time to understand these costs. Calculate the policy's annual premiums and the deductible you will pay in the event of a breach. In case of a cyberattack, you shouldn't have to pay much if you have a good cyber insurance policy.
- Covered vs. uncovered: Different types of cyber insurance policies cover varying losses. One type may cover specific cyberattack risks and losses, leaving you vulnerable to others. Read and understand the terms and conditions. Seek advice and consult if you are not familiar with the insurance terms. Ask questions about what you don't understand. The insurance carrier may not share everything about what is covered and what is not. So take it upon yourself to seek these details.
If you were to seek one critical piece of advice from insurance experts in your circle, all will most likely talk about the need to always start by understanding what types of coverage are available and especially what they don’t cover. This is a rule of thumb you must never let go to the back of the mind. Review your options carefully and consider your company’s specific needs when selecting a policy. It is also important to understand what limits are placed on coverage. For example, some policies may only cover expenses up to a certain amount, while others may provide more comprehensive coverage. Others may exclude certain types of damage, such as physical damage to property or loss of business income.
Finally, cybersecurity insurance may not offer 100% guarantee against a successful cyberattack. Its most fundamental role, like the other types of insurance, is to help offset the losses.