According to a 2022 Verizon report, 43 percent of all data breaches reported worldwide targeted small and medium-sized businesses – with numerous businesses reporting at least eight hours of downtime after a severe cybersecurity incident.
Little surprise, then, that demand for cyber liability insurance has surged in recent years. Businesses – especially small ones, with fewer financial resources – want to be made whole after a disruption. As a result, the cyber insurance market is expected to grow to $63.6 billion by 2029.
This article answers questions about cyber liability insurance works, and how small businesses can protect themselves from unplanned downtime due to cyber security incidents.
What Is Cyber Liability Insurance?
Cyber liability insurance (also commonly known as cyber risk insurance) is an insurance policy that helps businesses to cover the costs of resuming operations after a cyber security incident. Before we explore what such a policy protects and how it can help you, let’s first identify the different types of cybersecurity incidents.
Customer data breaches are the most well-known type of incident, but they are only the tip of the iceberg. Ransomware attacks, social engineering, malware, phishing, and cyber extortion are other types of cyber attacks that lead to financial loss and reputational harm. (For reference, you can review a comprehensive list of commonly occurring cybersecurity incidents from our knowledge base.)
Tally up the direct costs of such incidents, plus the lost income and the indirect costs of crisis management and public relations harm, and it should be no surprise that many small and mid-sized businesses fail within months of a cyber attack. Cyber liability insurance can be a feasible solution to prevent such disasters.
Let’s find out about coverage scenarios for such cyber insurance policies.
What Does Cyber Liability Insurance Cover?
One common misconception is that cyber liability insurance is only required for businesses handling sensitive data or personally identifiable information (PII) for customers. The reality is that if you handle or manage any customer data, sensitive or otherwise, it’s wise to get cyber liability insurance.
Most insurance carriers provide cyber-related coverage as an add-on to their general liability insurance plans, and their offerings typically take two forms: first- and third-party coverage.
First-party coverage is for businesses trying to protect themselves from cyber risk incidents against data they own or manage directly. Possible scenarios could include data breach investigation and remediation response costs, business interruption and continuity expenses, or even cyber ransom and extortion payments.
Third-party coverage helps to cover costs that arise when other parties sue your business for a cyber incident that you suffer. For example, it might cover the costs of litigation and settlements, including court-imposed monetary penalties. (This type of insurance coverage can be added to technology errors and omissions (E&O) insurance for businesses.)
What Does Cyber Liability Insurance Not Cover?
Although cyber liability insurance can cover damages over a data breach cyber security incident, it does not cover scenarios for accidental data loss due to legacy infrastructure or poorly managed data.
Businesses expecting to insure themselves against accidental data loss can use a data liability coverage option in their business owner policies. They can also cover professional negligence using a professional liability insurance add-on coverage to their existing technology insurance plan.
What Type of Cyber Liability Insurance Should Small Businesses Have?
Small businesses, especially in the financial and healthcare sector, deal with heavy regulatory compliance requirements around customer data. Suppose they experience a cyber security incident such as a data breach. In that case, the costs of recovering from such incidents, coupled with the loss of reputation, could be painfully high in the aftermath of a cyber attack.
Enduring the costs of repairing their technology infrastructure, paying for litigation against data breach lawsuits, and covering for business interruptions would be the top priority for considering insurance options for small businesses.
As a result, a comprehensive blend of general liability insurance with first- and third-party coverage for cyber liability insurance would provide small businesses with much-needed coverage for litigation and damages.
Adding a technology error and omission (Tech E&O) and business owner policies to their insurance coverage portfolio would also help them cover technology repairs, and provide vital resources for recoveries such as credit monitoring for customers or assistance in upgrading obsolete, mismanaged IT infrastructure.
Is It Worth Having Cyber Insurance?
A cyberattack costs $200,000 on average, according to a Hiscox report. That is a considerable expense for a small business, and this does not even cover the loss of profits and long-term reputational risk.
Moreover, since small businesses may not be able to keep up with technology advancements. That makes them easy targets for hackers, who attack such outlets for easy access to customer data like credit card numbers. Then, if the small business hasn’t been keeping up with required data protections and regulations, that leaves the business exposed to costly litigation and regulatory enforcement actions.
All that said, cyber liability insurance coverage does not solve all a small business’s problems. Cyber insurance coverage does not mean you can ignore your IT infrastructure and security readiness. Risk assessment is a continuous endeavor, so performing regular internal and external audits of your IT and application ecosystem will be top of mind for your IT team.
Running risk assessments and staying on top of corrective actions from each risk audit can get overwhelming. Here’s where the RiskOptics ROAR platform can help.
Keep Your Data Safe With the ROAR Platform
Small businesses should prioritize insurance against cyber incidents, but also perform continuous risk assessments and monitoring to reduce the chance of a cyber incident no matter what insurance coverage you have.
The RiskOptics ROAR platform can ease that burden by automating a series of cybersecurity checks and risk assessments, to provide a consolidated view of your overall security posture.
Interested in understanding how you can prepare well for cyber security incidents today? Schedule a demo with us and learn more about how the ROAR platform can help you plan effectively for IT risks against cyber threats.