Remote work became widespread in 2020 thanks to the Covid-19 pandemic, and many companies found their security protocols insufficient for that “new normal.” As a result, cyber attacks rose sharply in 2020 – and are still rising today, and likely will keep rising in the future.
One unpleasant discovery arising from that new reality: most business insurance policies don’t cover data breaches. Hence “cyber insurance” is quickly becoming popular.
What Is Cyber Insurance?
As the name implies, cyber insurance specifically covers cybersecurity incidents. These policies often cover costs such as technical efforts to recover lost data, repair of damaged equipment, notifying affected customers, and even professional help from lawyers or other advisers.
Cyber insurance is not a cure-all for cyber risks, and it’s not always a worthwhile expenditure for every company. If you’re considering cyber insurance coverage, you’ll need to evaluate numerous factors to determine whether it’s the right choice for your organization.
How Does Cyber Insurance Work?
Obtaining cybersecurity insurance is comparable to obtaining other types of insurance. Many vendors sell policies for various needs, such as errors and omissions insurance, liability insurance, and property insurance.
Cyber insurance plans will frequently include “first-party” coverage, which refers to damages that directly impact an enterprise; and “third-party” coverage, which refers to losses sustained by other companies due to business with the affected organization. For example, first-party coverage would cover the expenses of informing your consumers of a data breach. Third-party coverage will pay your legal expenses if a consumer sues your firm for carelessness after a hacker stole their personal information.
Cyber insurance coverage compensates an organization for any financial damages incurred due to a cyberattack or data breach. It also assists businesses with covering any costs associated with the remediation process, such as paying for the investigation, crisis communication, legal services, and consumer reimbursements. Cybersecurity insurance packages frequently offer some coverages automatically and others at your option.
What Isn’t Covered by Cyber Insurance?
Cyber insurance is not a perfect solution. While most insurers cover fundamental security breaches, insurance claims usually won’t cover loss of intellectual property or the public relations harm that may result from a cyber event. In addition, there are likely to be repercussions for security failures that you will need to handle yourself, and relying exclusively on insurance can still leave your business facing nasty surprise costs and consequences.
Moreover, some insurance companies may want to dictate how you respond to a breach, which your organization might find restrictive. Your insurance company could also require you to use its approved vendors and legal teams, even if you prefer to use your advisers.
Pricing for cyber insurance is inconsistent, but overall, premiums are rising. This is because attacks are becoming more frequent and more effective. In addition, since the cyber insurance market is relatively new, there can be significant discrepancies between what you pay and the benefits you receive. This makes it difficult for small businesses to become insured.
The Benefits & Disadvantages of Cyber Insurance
The primary benefit of cyber insurance is coverage in case of emergency. Knowing that this safety net exists can bring peace of mind to your stakeholders and board members. Future clients may also feel reassured that if a cyber incident happens, a mechanism is in place for compensation for stolen customer information.
Cybersecurity insurance firms also frequently provide resources and additional assistance when breaches occur. This legal guidance and referrals for specialists can be invaluable for companies that are otherwise unprepared for the severity of a breach.
Finally, cyber insurance policies can help to create awareness for cybersecurity needs at your organization and strengthen your overall security program. That said, it’s still crucial that you not become complacent about security risks; insurance is not a replacement for a robust unified risk management system.
The Downside of Cyber Insurance
There is some debate among cybersecurity professionals about whether cyber insurance encourages ransomware attacks.
Such attacks have increased over the last several years, and ransom demands are rising steadily in price. Some people argue that having an insurance policy in place tempts companies to pay the ransom demanded by the hackers – which may then encourage cybercriminals to target that company again in the future. Still, most security professionals advise against paying a ransom since that gives hackers more money and resources for future attacks.
Proponents of insurance argue that it’s always the business owner’s choice whether or not to pay the ransom and that many will choose to pay because that might be easier and cheaper than rebuilding a damaged IT network.
Many insurance providers have decreased their coverage for cyber-based extortion (read: ransomware attacks) to discourage organizations from paying the ransom. In addition, some have added coverage exclusions for foreign enemies to dissuade their customers from cooperating with cyber terrorists.
If ransomware is a concern for your company, don’t assume insurance coverage will solve your problems. Instead, create a strong defense against hackers and malware to prevent breaches.
Do I Really Need Cyber Insurance?
Insurance carrier Hiscox says the average cost of a cyberattack is $200,000. The most commonly reported data breach involves personally identifiable information, with credit and payment card information among the most frequently stolen data. Maintaining cyber liability insurance will assist businesses to remain functional following an attack.
Cyber liability insurance is critical. At the least, cyber liability insurance assists businesses in cyber compliance with state rules requiring them to notify consumers of a data breach containing personally identifiable information. Policies may also include:
- Compensation for legal bills and expenses
- Notifications to customers in the case of a breach
- Option to monitor the information of anybody affected for a set time.
- Costs associated with recovering corrupted data
- Repair costs for damaged computer systems
Do Small Businesses Need Cyber Insurance?
Identity thieves often target small businesses since they have less protection than larger corporations.
Cyber liability insurance coverage supplements and supports a company’s attempts to recover after a hack. It will give access to professional resources and financial assistance during a data breach’s investigation, notification, recovery, and post-recovery phases.
ZenRisk Can Help You Prevent Cyberattacks
Cyber insurance is a worthwhile option, but it can’t be your entire strategy. Your best approach is to build strong defenses against attacks regardless of whether you’re insured for them.
Staying on top of threats actively versus being reactive can be challenging no matter the size of your company, and increasing scale often decreases transparency into your risks. So how can you make sure that all threats are accounted for?
ZenRisk is a risk and compliance solution that makes tracking and analyzing threats throughout your company more straightforward than ever before. ZenRisk provides a clear view of your company’s threat landscape and includes automation and integration to help prevent cyber threats before they strike.
Schedule a demo and learn more about how ZenRisk can help you build a solid first line of defense for your company’s data.
