Cyber insurance is a reliable way for organizations to safeguard themselves against potential financial losses and damages from a data breach. It also offers coverage for damage claims made by third parties. One could compare cyber insurance to a more popular form of insurance, such as auto insurance, to better understand its benefits.
As you’re driving to work on a hectic morning, you can’t help but notice the rush of cars and people around you. The sounds of honking, screeching brakes, and chatter from your phone notifications fill the air. You’re already late for work, and the pressure is mounting. Suddenly, your phone starts buzzing incessantly, tempting you to check it. Despite your better judgment, you give in and take your eyes off the road momentarily. Before you know it, you collide with the car in front of you, causing a minor accident. The crunch of metal, the jolt of impact, and the fear of consequences all hit you like a ton of bricks.
When an accident occurs, auto insurance can help cover the expenses. Auto insurance policies commonly include property coverage, which takes care of most damages to your vehicle, and liability coverage, which is responsible for legal obligations to other parties involved in the accident due to property damage and/or injury. Basically, auto insurance can assist in paying for the repair costs of your car and the other driver’s car and potentially cover their medical expenses from the accident.
At its core, cyber insurance works similarly. Essentially, it helps people cover the cost of damages to their organization because of a data breach and the legal obligations to others or parties whose information the breach may have compromised. Instead of covering physical damage or injuries, though, at minimum, cyber insurance will help cover the costs of repairing operating systems. It can include recovering stolen data, paying compliance costs, and sometimes lost revenue.
Why Is Cyber Insurance Important?
Cyber insurance is newer, lesser-known, but increasingly vital than other forms of insurance. Organizations often overlook the importance of cyber insurance due to its novelty and lack of familiarity. However, given the ever-increasing relevance and significance of cybersecurity, it is crucial to consider cyber insurance as an essential component of annual budgets.
It is pretty standard for organizations of all sizes to have a few different types of insurance to protect themselves in case of unforeseen circumstances. For instance, a small brick-and-mortar store may opt for commercial property insurance to cover its physical assets in the event of theft, vandalism, or fire. They might also get business income insurance to help cover expenses after experiencing a business interruption. In addition, organizations like this often purchase general liability insurance to cover lawsuits or claims from a third party. These three types of insurance are so prevalent that they are usually bundled together in what is known as a business owner’s policy (BOP). However, cyber insurance is often not included in a BOP, and as a result, it is usually considered an afterthought or deemed unnecessary altogether, unfortunately for business owners.
It is increasingly evident that preparing for a cyber attack is no longer a luxury but a necessity. Recent malware and data breach trends indicate this. According to the 2021 Thales Data Threat Report, which surveyed 2,600 cybersecurity professionals, 45% of companies based in the United States have experienced a data breach in the past. Although cybercriminals frequently target large organizations and corporations, the report found that over a quarter of breaches affected small businesses.
It is a fact that everyone is exposed to the risk of data breaches, and cyber insurance can be highly beneficial in such cases. Cyber crime is growing alarmingly as people and companies become more interconnected than ever. It is predicted that by 2025, cybercrime will cost US organizations a whopping $10.5 trillion. With cyber attacks becoming a growing threat, there is an increasing need for a financial safety net to protect against them.
What Does Cyber Insurance Cover, and Who Needs It?
Because cyber threats are constantly evolving, cyber insurance is a flexible option that provides coverage and support to organizations of all sizes and industries. It is available to any organization that handles sensitive information or experiences financial information breaches, including small retail businesses, hospitals, and government agencies. While the specifics may vary, the basic components of cyber insurance coverage are generally consistent.
Ransomware and Other Malware
As a result of the COVID-19 pandemic, ransomware has become one of the most dangerous and expensive forms of malware that affects organizational operations. While phishing is still the most prevalent form of cyber attack, according to Verizon’s 2021 Data Breach Investigation Report (DBIR), ransomware has accounted for 10% of all data breaches in the past year. This is more than double compared to the frequency of ransomware attacks in the previous year. Phishing is a significant concern because it is a gateway to other types of attacks.
Ransomware can have devastating effects on businesses by completely shutting down their systems. Fortunately, cyber insurance can assist by helping to pay for the ransomware removal from the affected systems, unlocking them and returning your data, and even aiding in negotiations with the cyber criminals responsible for the attack.
Forensics
Identifying and eliminating the issue is crucial, but it’s also important to take steps to prevent future breaches in an organization’s systems. Fortunately, cyber insurance can assist in this area. Cyber insurance helps pay for professionals who specialize in identifying the root cause of a hack and eliminating any potential weaknesses or misconfigurations in an organization’s systems. After conducting a forensic analysis to detect any other breaches, they will focus on recovering any stolen data and help implement a cybersecurity strategy to prevent future breaches.
Liability
It can be argued that covering any potential third-party liability cyber insurance provides is even more critical than the first-party services and coverage. This coverage remains in effect in case of a compromise of customers’ sensitive information, when the insured organization’s systems are used to infect another party’s systems with malware, and in any other situation where the insured organization is found liable for data privacy violations or claims of loss or damage. This coverage includes financial loss due to business interruption, legal fees, fines incurred due to violating data privacy regulations, reputational damages to a third party, and more.
Should You Invest in Cyber Insurance?
Cyber insurance is wise for organizations and individuals who handle sensitive information. Cyber insurance protects you, your employees, and your customers from the harmful effects of a data breach. Suppose you lead an organization that frequently handles or stores sensitive information. In that case, it’s crucial to consider purchasing cyber insurance as a first step in protecting yourself, your employees, and your customers.
Cyber insurance is becoming increasingly important, even for small and medium-sized organizations, as cybercriminals now target them more frequently. According to IBM and the Ponemon Institute’s 2021 Cost of a Data Breach Report, businesses with less than 500 employees suffered an average loss of $2.98 million due to data breaches in the past year. This cost could leave an uninsured small business in financial ruin.
Over the last few years, the cost of cyber insurance has risen dramatically and has become increasingly difficult to obtain. In the past, some organizations have relied solely on cyber insurance to cover their cyber security needs, but insurance companies are now much more rigorous in ensuring that customers are doing their part to protect themselves. To maintain their current policy or obtain a new one, organizations must demonstrate that they have an effective cyber security plan in place and provide evidence that they were following it in the event of a breach.
Takeaways
- Cyber risks are increasing all the time.
- Regardless of the size of your organization, you need to consider cyber insurance.
- Not all cyber insurance is the same. Make sure you understand what yours does and does not cover.
- You have to have cyber security in place to get cyber insurance and for it to cover losses. Just like car insurance, if you are driving drunk, don’t expect your policy to protect you.
- Cyber insurance has gotten more expensive and harder to collect. Be prepared!
Is the safety and security of your organization a top priority? Let Commonwealth Sentinel become your partner in risk reduction and ensuring the well-being of everyone. We offer a wide range of comprehensive services, including software and hardware solutions, training, and policy implementation. Please contact us at (502) 320-9885 to learn more about how we can help you achieve complete peace of mind.