Minimize Risk and Maximize Security with Cybersecurity Insurance

Minimize Risk and Maximize Security with Cybersecurity Insurance
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Table of Contents

Cybersecurity insurance, also known as cyber insurance or cyber liability insurance, provides comprehensive coverage to businesses. It helps them recover financial losses that result from data breaches, malware or ransomware attacks, and cyber incidents. Cybersecurity insurance isn’t dissimilar from other forms of personal insurance, commercial property insurance, or business insurance. 

 

Fundamentally, it covers a range of outcomes of security breaches, including lost income, remediation processes, compromised computer systems, credit monitoring services and costs, and legal fees. This comprehensive coverage ensures that businesses are secure and protected in the face of cyber threats.

 

Now more than ever, liability insurance policies for cybercrime are crucial. The frequency and severity of cyberattacks are escalating rapidly. Hackers are now targeting businesses of all sizes with unprecedented speed, and the aftermath of these attacks can include service disruptions, regulatory penalties, business disruptions, and the compromise or theft of sensitive data and customer information.

 

According to The Independent, more than 364 million individuals had their personal records compromised in 2023. Furthermore, IBM’s Cost of a Data Breach Report 2023 highlights a 15% rise in the average data breach cost over three years. In 2023, the average cost of a cybersecurity breach was a staggering $4.45 million. 

 

These figures underscore the potential financial devastation businesses, especially small ones with limited resources, can face. That’s why cyber insurance policies are of paramount importance. Companies that have suboptimal cyber insurance coverage can face major irrecoverable setbacks. 

 

This post focuses on the importance of cybersecurity insurance and how it can help minimize risk and maximize security. Before we delve into the intricate details of cyber liability coverage, let’s revisit why cybersecurity insurance is one of the most important things enterprises must tackle. 

 

Why is Cybersecurity Insurance Important? 

 

As mentioned in the introduction, businesses face countless cyber risks. Furthermore, threat actors constantly sharpen their tools and tactics, meaning cyber threats continually evolve and challenge enterprises' cybersecurity posture across sectors. 

 

Cybercriminals primarily target sensitive data and customer information that businesses possess. When a cybercriminal successfully exfiltrates data, companies face repetitional damage, revenue loss, and an exodus of customers and clients. If a data breach involves the theft of third-party data, that can further increase the scale of financial and repetitional disaster. 

 

Most enterprises have general liability insurance or professional liability insurance with unique premiums, insurance cover policies, and omissions. Certain small business owners may purchase Business Owners Policy (BOP) coverage. However, such general liability insurance and small business insurance don’t cover security incidents like data breaches, creating a significant coverage gap. Businesses must look beyond traditional types of insurance, such as general liability insurance. It’s time to understand and prioritize cybersecurity insurance.  

 

What Does Cybersecurity Insurance Cover? 

 

Like any other type of general insurance, businesses can purchase cybersecurity insurance from various insurance providers. The cybersecurity insurance market will reach $17.6 billion by 2028, rising at a compound annual growth rate of 11.4% since 2023. The key drivers of this market include the dramatic increase in cyber risks and vulnerabilities and the growing awareness about cyber coverage gaps in general liability insurance and property damage insurance plans. There are countless insurance companies in this rapidly growing market. For businesses to choose an optimal provider, they must know what cyber insurance covers. 

 

Cybersecurity insurance should cover both first-party and third-party losses. The following are a few of the most critical expenses that cybersecurity insurance must cover: 

 

Data Breaches

 

In many ways, cybersecurity insurance is synonymous with data breach insurance. Cybersecurity insurance must cover any security breach involving the compromise of sensitive data, including trade secrets and customer data such as social security numbers and credit card numbers. 

 

Data Recovery

 

An effective cybersecurity insurance plan will cover business expenses to recover lost, stolen, corrupted, or compromised data. Since data is the most valuable asset for most organizations, this is a critical aspect of cyber liability insurance. 

 

Downtime and Disruptions

 

A network security breach can result in extended downtime and business disruptions, leading to financial and revenue loss. With cybersecurity insurance, these losses are recoverable, and businesses can ensure that incident-specific downtime and disruptions don’t cause long-term slumps in performance and reputation. 

 

Compliance and Regulatory Failures

 

When businesses suffer a data breach, they will face legal investigations. Furthermore, because of failing to protect sensitive data, such as personally identifiable information (PII), various governing bodies may charge them penalties. An effective cybersecurity insurance policy covers these compliance-related expenses, which typically include audits and fines. 

 

Public Relations

 

The repetitional damage businesses suffer after a data breach is just as problematic as quantifiable financial damage. Right after cyber events, companies often hire public relations firms to kickstart reputational damage control plans. Some cybersecurity insurance plans cover the costs of public relations and repetitional management.  

 

Remediation

 

When data breaches occur, enterprises must swiftly and meticulously execute threat response and remediation actions. This can help companies understand the root cause of their data breaches, fix vulnerabilities, repair systems, address misconfigurations, and strengthen their cybersecurity posture for the future. Cyber insurance covers these critical remediation costs.

 

Ransomware Settlements

 

Ransomware is one of the most prominent forms of cybercrime that affects businesses. Ransomware is a form of cyber extortion where cybercriminals block a company from accessing their own data until they pay a ransom. Certain cybersecurity insurance plans cover ransomware settlements. However, considering how expensive ransomware settlements are, many companies in the insurance industry now exclude ransomware settlements. 

 

(Some) Third-Party Losses

 

In addition to first-party coverage, many cybersecurity insurance plans feature third-party coverage. This is an invaluable addition for businesses whose third-party vendors and partners may suffer losses due to a data breach. However, it’s important to remember that not all cybersecurity insurance plans cover third-party losses. Therefore, businesses should pay close attention to the extent of their cybersecurity insurance’s third-party coverage. 

 

What Does Cybersecurity Insurance Not Cover? 

 

In the previous sections, we answered the questions like “What is cyber insurance?” and “What does cybersecurity insurance cover?” Now it’s time to focus on an equally important aspect of cybersecurity insurance: exclusions. Exclusions are essentially the list of losses or expenses that cybersecurity insurance won’t cover. Knowing about cybersecurity insurance exclusions and understanding how to plan for coverage gaps is a significant part of enterprise risk management.

 

The following are some of the most important cybersecurity insurance exclusions to be aware of: 

 

Social Engineering Attacks

 

Social engineering attacks are unique because they focus on the psychological manipulation of employees and legitimate users to gain access to sensitive data and crown jewels. Cyber liability insurance policies typically don’t cover social engineering attacks like phishing. However, many insurance agents offer social engineering attack coverage at a premium. 

 

Cyber Warfare

 

Increasingly, countries are using cyberattacks as a weapon of war. Policyholders must remember that insurance companies don’t cover these types of cyberattacks. While it’s unlikely that small and medium businesses will be the victims of state-sponsored cyberattacks, policyholders must still know exactly what their cybersecurity insurance covers and what it doesn't. 

 

Previous Data Breaches

 

Policyholders must remember that any security breach that occurred before they purchased a cybersecurity insurance plan doesn’t come under that plan’s coverage. Therefore, companies can’t use a new cybersecurity insurance plan to manage the fallout from a data breach that has already occurred. No matter how much cybersecurity insurance costs, it never covers events from the past. 

 

Insider Threats

 

Insider threats are the root cause of numerous data breaches. Insider threats include both malicious insiders as well as employee negligence or accidents that result in security breaches. Cybersecurity insurance will not cover data compromise or exfiltration due to insider threats.

 

Suboptimal Security Posture

 

Cybersecurity insurance will not cover data breaches that occur because of a weak enterprise cybersecurity posture. Suppose a security incident is caused by poor security configurations, suboptimal vulnerability management practices, or deficient incident response plans. In that case, businesses can be sure that their cybersecurity insurance won’t cover those losses.

 

Proactive Cybersecurity Optimization

 

Cyber liability insurance doesn’t cover any proactive optimization of IT environments. For example, a business can’t procure security tools, services, or personnel from various service providers to protect itself from potential data breaches in the future and have those expenses covered by its cybersecurity insurance. 

 

Known Misconfigurations

 

If a cybercriminal exploits known vulnerabilities and misconfigurations to illegitimately access an enterprise’s IT environments, those data breaches won’t be covered under cybersecurity insurance coverage. However, if businesses know about weaknesses in their IT environments and cybersecurity posture, they must address them before security incidents occur. 

 

Non-Malicious Disruptions

 

As threatening as modern cybercriminals are, it’s important to remember that not all downtime, disruption, service delays, and outages are the result of direct attacks. In certain instances, business outages could be due to myriad internal factors. Cybersecurity insurance will not cover any disruptions or data compromises that aren’t the result of a cyberattack. 

 

Cyber Insurance for Small Businesses: Important Considerations

 

Some may ask why it’s important to focus on cyber insurance for small businesses. The answer is simple. Data breaches can devastate a company via revenue loss, compliance fines, repetitional damage, and numerous other fallouts. Multinational giants can bounce back from these losses simply because they have more resources. When small businesses are victims of data breaches, it will likely lead to the end of all operations. That’s why cyber insurance for small businesses is particularly important. 

 

In this section, we will focus on a few critical considerations that small businesses must keep in mind when approaching cyber liability insurance. Remember that the following applies to companies of all sizes. However, small businesses, in particular, can gain a lot from this information. 

 

What is the cost of cyber liability insurance? 

 

The cost of cyber liability insurance depends on numerous factors, including the size, sector, revenue, data ecosystem, network security, and cybersecurity track record of a company. Insurance companies will conduct an underwriting process to estimate how much a business might need in the event of a cybersecurity breach. The underwriting process will also determine the likelihood of such an event occurring. Agents will formulate an insurance quote or base premium by considering all these factors. For small businesses, this can range between a few hundred dollars to tens of thousands of dollars, depending on their context and circumstances. 

 

Does cyber liability insurance have deductibles? 

 

When discussing cyber insurance for small businesses, it’s very important to remember that, like any other form of insurance, there are deductibles. A deductible refers to the sum enterprises need to pay if there’s a data breach. Cyber liability insurance will acknowledge the deductible and cover the remaining costs. 

 

Can cyber liability insurance replace a robust cybersecurity strategy?

 

Enterprises (especially small businesses) must remember that, as essential as cyber liability insurance is, it can never replace a robust cybersecurity posture. While cyber liability insurance is a vital part of risk management, businesses should focus on building strong cybersecurity fortifications and enforcing proactive security measures to keep threat actors at bay. A robust cybersecurity posture includes strategies, tools, personnel, practices, and partnerships. Insurance companies will not ignore a potential client’s cybersecurity posture. Simply put, companies with poor cybersecurity practices can expect exorbitant premiums, whereas companies with a strong cybersecurity posture will get better cyber liability insurance deals. The bottom line is that cyber liability insurance and cybersecurity strategy go hand in hand. Enterprises need both.   

 

Conclusion

 

Cyber insurance, or cyber liability insurance, helps enterprises recover losses from data breaches and other cyberattacks. Cybersecurity insurance is vital because the volume and velocity of cyber threats are increasing every day, and businesses need protection. Cyber liability insurance typically covers data breaches, data recovery, incident-related downtime, compliance fines, public relations expenses, remediation, ransomware settlements, and third-party losses. Cyber insurance exclusions include social engineering attacks, cyber warfare, previous data breaches, insider threats, poor security posture, known vulnerabilities, and non-malicious disruptions. 

 

Beyond this information about cyber insurance coverage, there are a few important points to keep in mind regarding cyber insurance for small businesses. For example, it’s critical to know that cyber insurance costs depend on an organization's scale and activities. It’s also important to remember that cybersecurity insurance has deductibles and that, in no instance, can cybersecurity insurance replace a robust security strategy and posture

 

If enterprises keep this information in mind, they can identify and purchase an optimal cyber liability insurance plan. And as the title of this post makes clear, an optimal cybersecurity insurance plan is the best way to minimize risk, maximize security, and succeed in the modern world.

 

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Categories: Security, Strategy, Cyber Security, IT Security, Digital Transformation, Cybersecurity, Insurance, Cybersecurity Insurance, Cyber Insurance for Small Businesses, Cyber Liability Coverage, Cyber Insurance Coverage

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