What Is Cyber Insurance?
Just like you insure your car in case of an accident, or your home in case of a tornado or flood, a cyber insurance policy provides coverage for your business if you experience a cyber attack.
Cybersecurity insurance is not a government requirement, but it’s a vital tool that helps businesses recover from attacks by providing financial assistance and crisis management services.
Businesses often purchase their cyber policies through providers who also offer other forms of insurance. There are a variety of coverages available, and a business’s cyber policy could include “first-party” coverage, “third-party” coverage, or a combination of both.
- First-party coverage deals with the immediate costs to your business during a cyber attack, such as lost business revenue, the expenses of informing customers of the attack, and other related costs.
- Third-party coverage helps cover costs in the event that customers or other affected entities take legal action against your business.
Do Businesses Really Need Cybersecurity Insurance?
A 2021 survey from CNBC found more than half of small business owners (56%) said they were unconcerned about a cyber attack, while only about one in four (26%) said they had cybersecurity insurance.
While small and mid-sized businesses (SMBs) may feel like they aren’t as likely to be targeted because of their size, national cybersecurity experts agree that they are increasingly in the crosshairs of hackers.
For example, a 2022 report by Coveware, a company that helps victims recover from ransomware attacks, found 82% of ransomware attacks go after small businesses. The risk is high for SMBs that digitally handle personal information like customer credit card numbers, employee payroll information, and more.
The expenses from a cyber attack can add up if a business needs to cover costs like:
- Revenue loss due to not being able to do business as a result of the attack.
- Notification of those affected by the attack and other necessary entities (regulatory agencies, news media, etc.).
- Credit monitoring for those whose data was affected by the attack.
- Potential litigation resulting from the attack.
- Potential fines from regulatory agencies.
- Negotiation or ransom payments resulting from a ransomware attack.
The Hiscox report found the median cost of a cyber attack for small businesses is $8,300. Some can cost much more — the 2023 Cost of a Data Breach Report from IBM reported that data breaches affecting companies under 500 employees have an average cost of $3.31 million.
How to Tell What Coverage You Need
There are a variety of types of cyber insurance coverage, and the right one for you depends on your business’s needs.
Some specific coverage aspects to look for and examine include:
- Data breach coverage that assists with expenses related to notifying customers of a data breach, providing credit monitoring, and investigating what data was accessed.
- Cyber extortion coverage that deals with the costs involved with negotiating or making payments due to a ransomware attack.
- Business interruption coverage that helps replace the funds you lose when a business must stop operations.
- Network security coverage for repairing or replacing elements of a business’s network that were damaged.
- Cyber liability coverage that helps protect against legal expenses.
The Federal Trade Commission recommends that businesses seek coverage for:
- Data breaches.
- Attacks on data held by third-party vendors.
- Cyber attacks that occur anywhere around the globe — not just the U.S.
- Terrorist acts.
To determine what coverage you need (or what amount), it’s best to work with a cybersecurity expert or an insurance agent who can help you assess your risk and your needs based on your business’s size, the type of data you and your vendors store, your security protocols, and your budget.
If you are a small or mid-sized business that already works with a virtual chief information security officer (vCISO), then they can help you with all of the steps needed to apply.
Prerequisites for Cyber Insurance
To qualify for cybersecurity insurance, your provider may require your business to adopt certain best practices before you can receive a policy. These can include steps like:
- Implementing multi-factor authentication.
- Using data encryption.
- Having regular cybersecurity awareness training for employees.
- Strong password policies, and more.
Talk with your insurance agent or provider about steps you could take that would help you qualify or potentially receive a lower premium.
Need Help Navigating the Cyber Insurance Landscape? Work With the Experts at 12 Points Technologies
If you’re looking for more guidance on how to qualify for cybersecurity insurance and how to find the best fit, reach out to the experts at 12 Points Technologies.
Our team of cybersecurity experts can help you evaluate your risk, assess your current practices, and fill in gaps that could keep your business from qualifying for a policy. We also help our customers complete their insurance application paperwork, so you don’t have to struggle to figure out what terminology means.
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