Businesses of any size and type that use technology to conduct business, from multinational corporations to mom-and-pop stores, are at risk from cyberattacks. The risks that businesses confront increase in sophistication and complexity along with technology, and to effectively control and reduce cyber risk, every business must be ready with cyber liability insurance along with a strong cyber security strategy.
Today, cyber liability insurance is one of the most prominent insurances in one of the most dynamic fields, and it’s getting more complicated than ever. Every industry in the world, whether small or large, is exposed to the cyber world, and thus everyone is at risk.
Cyberattacks can be in any form, ranging from ransomware, malware, and phishing emails to social engineering attacks. According to the latest statistics, 493.33 million ransomware attacks were detected by organizations globally in 2022, and phishing attacks were the number one cybercrime type that recorded 300,497 complaints.
Statista highlights that within the U.S. alone, there were 1802 reported cases of data compromise in 2022, which was “a marked increase from the 447 cases reported a decade prior.”
Companies are finding themselves at the mercy of these cyberattacks and, in this regard, an insurance policy makes a lot of sense for business owners. Even in situations like this, there are many fence sitters and naysayers. To questions like “is cyber insurance possible or what does it cover in the first place?” The answer to both is yes. Company affairs are insurable, and every aspect exposed to the cyber world is insurable.
In this article, we’ll cover details about cyber insurance and how it works.
What does cyber insurance cover?
While companies of any shape or size face cyber risk, bigger firms are more vulnerable to cybersecurity threats. Some of the prominent cyber risks are security risk, operational risk, privacy risk and service risk.
Companies usually take protection for these via distinct agreements that cover them, which are:
- Privacy liability and network liability
- Business network disruption
- Errors and omission
- Media liability
Broadly, these are the categories under which companies plan and devise their insurance policies; but no insurance policy of one company matches the other just for the simple reason that not all companies are the same and function the same way.
Below is a more comprehensive look at the above-mentioned cyber liability insurances and the risks each covers:
Privacy liability and network liability.
This provides both first and third-party coverage. Network liability comes in handy when a person, first or third party’s information or privacy is at risk. In case you have a malware infestation, data breach or stolen, cyber extortion or ransom, email compromise, or ransomware then this liability cover comes to your rescue.
Likewise, privacy liability is another aspect of this coverage concerning both first and third-party private information. There may be sensitive information on board which if breached or violated could have serious implications for the information holder by exposing them to liability. This coverage will protect your company from breaches or violations. The third-party liabilities might come to you in the form of obligation in the event of a breach or just government investigations and in this regard, this coverage protects you by defending your company from legal litigation and funding a settlement if the need arises, and also legal expenses, fines, etc. that may be incurred by the company coming out of an investigation into it by government or statutory bodies.
Business network disruption.
This is required mostly for companies that are very dependent on communication and technology. It protects you from data outages and human errors which may cause your company to have downtime or when faced with an operational risk from cyberattacks. This coverage will cover your losses, expenses, lost profits and extra costs that you might have incurred due to this event.
Errors and omissions (E&O) insurance.
This is another type of insurance that guards businesses against alleged mistakes or failure to perform their services. Technology services like software, consulting, or even traditional professions of doctors, lawyers, etc. are also covered by E&O insurance. It covers legal fees, and defense costs and basically indemnifies you if any legal thing happens due to the E&O.
It provides coverage to businesses for intellectual property infringement, other than patent infringement, resulting from the advertising of their services. Its coverage extends to print as well as online advertising, and posts on social media channels.
What is not covered under a cyber insurance policy?
Like any other insurance policy, cyber liability insurance also has exclusions wherein it doesn’t cover the business for future losses or loss of value due to theft of intellectual property. In addition, the insurance does not cover mistakes made by individuals or careless company practices that are considered avoidable and negligent such as:
- Insider threats like fraud or wrongdoing.
- IT and digital assets mishandling.
- Prior cyber incidents that took place before the policy was employed.
- Poor data management.
- Vulnerabilities that have not been fixed despite the company being aware of them.
- Costs of business interruption caused by third-party owned and managed computer system failures which the provider’s insurance doesn’t cover.
- Incidents that subsidiaries encounter that are beyond the control of the parent company.
- Environmental catastrophes that disrupt business, such as floods, gas spills or electricity outages.
In this post-pandemic world, insurance and coverage have become subjective and complex in the sense that there are fewer areas of control and more areas of vulnerability. In this context, it’s advisable for companies to keep a close relationship with their insurer and get themselves coverage that could be niche in its appeal.
Do small businesses need a cyber insurance policy?
In comparison to larger firms, a majority of small businesses lack a strong cybersecurity infrastructure. Smaller companies should think about buying cyber insurance to safeguard their assets and sensitive data because implementing a solid security system can be difficult and demands enormous expenditures.
Cyber insurance is a high priority for them as smaller companies are more unlikely to recover from an attack than bigger established firms. The entire enterprise might be destroyed by one security event, with a remote prospect of recovery owing to the disruption of business operations.
How to choose a cyber insurance policy?
When it comes to cyber risk and its solutions, most companies go out seeking what they think will be the best-suited plan for them. Instead, it should be how this plan can be modified to meet their requirements. The best plans are always tailor made for clients, and clients should also see to it that their problems are taken care of first rather than the standard answers. A few of the add-on plans that are very popular among insurers these days are social engineering and reputational harm coverage.
The bottom line
The digital economy of today has become increasingly dependent on cybersecurity, which has a big influence on both enterprises and business owners. Cybercrime has significant financial costs, including direct cash losses, fines under the law and regulations, and wider economic ramifications. As a result, businesses and business owners alike need to take precautions to safeguard themselves against cyber threats, such as putting in place robust cybersecurity measures and purchasing cyber insurance.