What is Cybersecurity Insurance, and Why is it Important?
Cybersecurity insurance, also called cyber liability insurance or cyber insurance, is a contract that an entity can purchase to help reduce the financial risks associated with doing business online. The insurance policy transfers some risk to the insurer in exchange for a monthly or quarterly charge.
Cybersecurity insurance is a new and emerging industry. Companies that purchase cybersecurity insurance today are considered early adopters. Cybersecurity policies can change from one month to the next, given the dynamic and fluctuating nature of the associated cyber risks. Unlike well-established insurance plans, underwriters of cybersecurity insurance policies have limited data to formulate risk models to determine insurance policy coverages, rates and premiums.
Cyber insurance originates in errors and omissions (E&O) insurance, a separate form of insurance that protects against faults and defects in company services. E&O insurance is analogous to product liability policies for companies that sell physical or digital products.
While some cyber insurance policies contain specific provisions for E&O, most providers sell these as separate and distinct policies. E&O insurance does not cover the loss of third-party data, such as customer credit card numbers; customers needing such protection can purchase a cyber insurance policy.
Why Cyber Liability Insurance is Important
What is Cyber Liability Insurance? A Cyber Insurance policy covers data breaches and other cyber events expenses.
Cyber Insurance policies provide coverage specific to cybercrime losses. But they can also cover expenses in other situations—for instance, a breach resulting from exposing personal information on a lost smartphone.
And who needs Cyber Liability Insurance? In short, everyone. Certainly, every business technology and the internet needs these policies. In an age when email is more common than physical mail, and transactions occur online more frequently than in person, cybercriminals have no shortage of opportunities to exploit electronic interconnectedness for their gain.
When carried out against large organizations, cyber attacks make headlines. However, small and medium-sized businesses face just as much, if not more, danger.
And cyber events can prove quite costly. A data breach now costs an average of $4.35 million. Now add to that figure the damage to a company’s brand and reputation. The answers to “What is cyber insurance, and why do you need it?” become clear.
How does cyber insurance work?
Cyber insurance policies are sold by many suppliers that provide related business insurance, such as E&O insurance, business liability insurance and commercial property insurance. Most plans offer first-party coverage, which applies to losses that directly affect a firm, and third-party coverage, which relates to losses sustained by others due to a cyber event or incident due to their commercial relationship with that company.
Cyber insurance policies help cover the financial losses that result from cyber events and incidents. In addition, cyber-risk coverage helps with the costs associated with remediation, including payment for legal assistance, investigators, crisis communicators, and customer credits or refunds.
Who needs cyber insurance?
Businesses that create, store and manage electronic data online, such as customer contacts, sales, PII and credit card numbers, can benefit from cyber insurance. In addition, e-commerce businesses can benefit from cyber insurance since downtime related to cyber incidents can cause a loss in sales and customers. Similarly, any business that stores customer information on a website can benefit from the liability coverage that cyber insurance policies provide.
Types of Cyber Insurance
Cyber insurance packages can take many different forms, depending on the criteria. For instance, they can be classified based on locality, coverage, or risk. However, the following are generally the key types of cyber insurance available for individuals and businesses.
First-Party Cyber Insurance
In this instance, insurance packages are meant to compensate the owner for the losses, costs, and annoyance caused by the security breach. Some of these are as follows:
Fraud and Theft: This policy covers payment for costs arising from data loss due to fraud or theft. It may also cover risk management of crimes resulting from dishonesty or fund transfers.
Forensic Work: This policy covers the costs of conducting forensic investigations. It pays for all legal and technical services required to meet the standards of the presiding court.
Business Interruption: This type of cybersecurity insurance policy covers business interruption costs after an incident. It is identified by the policyholder’s inability to carry out routine business due to the cyber attack.
Blackmail and Extortion: Many cybercrimes involve blackmailing and extortion by criminals to destroy a company’s intellectual property if it fails to pay a ransom. The policyholder may pay the amount to save themselves from reputational damage or, at times, help collect evidence against the perpetrator.
Loss of Data: A first-party insurance coverage policy may cover the costs of data loss and restoration required to bring operations back to normal. These costs may include repairing and replacing damaged computer systems and other organizational assets like electronic data.
Third-Party Cyber Insurance
Different packages in third-party coverage are as follows:
Litigation Coverage: This covers costs incurred on meeting obligations arising from lawsuits, court judgments, fines, and penalties imposed due to an incident.
Regulatory Coverage: This type of insurance helps cover costs for all technical and forensic services carried out while responding to a government order or request. It may cover costs incurred after an incident where the government wants to know the causes of the incident and prevent it from happening in the future. It may also pay if the policyholder is fined after an inquiry.
Notifications and Communications: This covers costs related to communicating with stakeholders about the incident and how you deal with it. These stakeholders may be your clients, employees or third parties.
Emergency and Crisis Management: This type of insurance deals with emergency or unexpected events requiring extraordinary responses, such as posting warning signs to the public after a security breach.
Credit Monitoring and Review: If a policy owner has to work on credit monitoring and review along with anti-fraud procedures, this policy will compensate them.
Media Issues: This package covers expenses regarding media overtures after an incident. In case of copyright infringement, it may cause insurance costs to be met to avoid any further general liability.
Customer Privacy: This policy covers the costs that may emerge due to a breach of confidential client information, such as bank account information.
There are various reasons to have a cyber insurance policy for your company. To prevent security breaches and potential damages from a cyber attack, the company, in particular, needs full-functioned protection.
Businesses must be well-prepared for all types of cyber threats. Even though having a cyber insurance policy can give a bit of relief to the company’s stakeholders, finding those cyber threats and eliminating them beforehand to prevent any damage is vital.