Cybersecurity insurance, also known as cyber insurance or cyber liability insurance, is a type of insurance coverage designed to protect individuals, businesses, and organizations from the financial losses and liabilities associated with cyber-related incidents and data breaches.
It provides coverage for various aspects of cybersecurity risks and can help mitigate the financial impact of cyberattacks, data breaches, and other cyber threats.
Importance of Cyber Security Insurance
Companies are increasingly recognizing the importance of this type of insurance as the risk of cyberattacks targeting various aspects of their operations continues to rise. The potential consequences of data compromise, loss, or theft can have a significant impact on a business, ranging from the loss of customers and damage to reputation, to financial repercussions.
Moreover, organizations may be held accountable for any harm resulting from the loss or theft of third-party data. By having a cyber insurance policy in place, enterprises can safeguard themselves against cyber incidents, including acts of cyber terrorism, and receive assistance in addressing security breaches.
Furthermore, a notable example of the need for cyber insurance is the 2011 breach of Sony’s PlayStation Network, which exposed the personal information of 77 million users and disrupted service access for 23 days. Sony incurred costs exceeding $171 million, expenses that could have been potentially covered by a cyber insurance policy. Unfortunately, as Sony lacked such coverage, it had to bear the entire financial burden of the cyber damage.
Do I Need Cyber Security Insurance?
You most likely do. An organization becomes more vulnerable to attacks as the number of applications, devices, and so on grows. Businesses must insure against cyber risks in the same way that they insure against business problems, natural disasters, and physical risks.
If a costly breach occurs, your company may lack the resources to address these issues or recover losses. Cybersecurity insurance can help ensure that these attacks do not cripple your company.
Cyber Security Insurance Coverage
As the market matures, cyber insurance policies become more diverse, and the finer details of what one policy may cover may differ slightly from another, depending on a variety of factors. Nevertheless, according to Lori Bailey, here are some of the major coverages of cyber insurance:
- Business interruption losses
- Losses from system failure
- Digital asset destruction
- Data retrieval restoration cost
- Network security and privacy liability
- Breach response and remediation expenses.
Risks Excluded from Cyber Insurance
A cybersecurity insurance policy will frequently exclude issues that could have been avoided or were caused by human error or negligence, such as:
- Poor security processes
- Breaches that occur before an organization or business purchased a policy
- Human error
- Insider attacks
- Vulnerabilities that existed before
- Technology system improvements.
How Cyber Insurance Works
Many insurance providers that offer business insurance, such as errors and omissions (E&O) insurance, business liability insurance, and commercial property insurance, also offer cyber insurance policies. These policies typically provide coverage for both first-party and third-party losses resulting from cyber events or incidents.
First-party coverage included in cyber insurance policies addresses the direct losses a company may experience. On the other hand, third-party coverage applies to losses suffered by individuals or entities who have a business relationship with the company in question.
Cyber insurance policies play a crucial role in covering the financial repercussions of cyber events and incidents. They help mitigate the costs associated with remediation efforts, including expenses related to legal support, investigators, crisis management professionals, and potential customer compensation or refunds.
How to Choose a Good Cyber Insurance Policy
Choosing a good cyber insurance policy requires careful consideration of several factors. Here are some key steps to guide you in selecting the right cyber insurance policy:
Assess Your Cyber Risk
Start by evaluating your organization’s specific cyber risks and vulnerabilities. Consider the nature of your business, the sensitivity of the data you handle, the potential impact of a cyber incident, and any regulatory or legal requirements you need to meet. This assessment will help you identify the coverage needs and limits required for your organization.
Understand Coverage Options
Familiarize yourself with the different coverage options offered by cyber insurance policies. Typical coverage areas include data breach response, business interruption, legal expenses, third-party liability, and regulatory compliance. Determine which coverage elements are essential for your organization based on your risk assessment.
Evaluate Policy Terms and Conditions
Thoroughly review the terms and conditions of each policy you consider. Pay attention to coverage limits, deductibles, exclusions, and any waiting periods or retroactive dates. Ensure that the policy aligns with your organization’s specific needs and offers sufficient protection against potential cyber risks.
Evaluate Your Policy Limits
Evaluate the coverage limits provided by each policy. Consider the potential financial impact of a cyber incident on your organization and select coverage limits that adequately protect your assets and liabilities. Keep in mind that underinsuring can leave you exposed to significant financial losses, while over insuring may result in unnecessary expenses.
Examine Claims Process and Support
Understand the claims process and the level of support provided by the insurance company in the event of a cyber incident. Review their reputation for handling claims promptly and efficiently. A reliable insurer with a track record of providing excellent customer support can make a significant difference during the claims process.
Consider Additional Services
Some insurance policies may offer additional services to help prevent cyber incidents or assist in incident response. These services can include risk assessments, employee training, breach response planning, and access to incident response teams. Evaluate whether these additional services align with your organization’s needs and provide added value.
Review Insurer’s Reputation and Financial Stability
Research the insurer’s reputation and financial stability. Look for reputable insurance providers with a strong track record of handling cyber claims and providing reliable coverage. Check ratings from independent rating agencies to assess the financial stability of the insurer.
Seek Professional Advice
Consider consulting with a knowledgeable insurance broker or risk management professional who specializes in cyber insurance. They can provide insights, evaluate your specific needs, and help you navigate through the complexities of cyber insurance policies.
Frequently Asked Questions
Can I Replace Cybersecurity Defense with Cyber Insurance?
No. Cyber risk insurance can be a great way to mitigate the damage caused by a breach, but it should be used in conjunction with cybersecurity technology as part of a comprehensive cyber risk management strategy.
What Are the Two Types of Cyber Insurance?
Third-party liability coverage and first-party coverage are the two main types of cyber insurance coverage.
What Is Another Name for Cyber Insurance?
Cyber insurance, also known as cyber risk insurance or cyber liability insurance coverage (CLIC), is a policy with an insurance carrier that offsets costs associated with damages and recovery following a cyber-related security breach or similar event.