What Is Cyber Insurance?
Cyber insurance helps organizations cover financial losses and damages related to a data breach, as well as any claims of damage made by a third party. While this may initially seem difficult to conceptualize, cyber insurance is best explained by considering how a more common form of insurance like auto insurance works.
For a moment, let’s imagine you’re driving to work on a busy morning. You’re running late as it is, but you also notice that your phone is being flooded with calls and messages. In a moment of anxiety, you lose focus on the road to check your phone. By the time your attention returns to the road, it’s already too late—you get into a minor fender bender with the vehicle in front of you.
Typically, this is where auto insurance comes into play. Auto insurance will often include property coverage, which covers the majority of damages to your vehicle, as well as liability coverage, which covers legal obligations to others involved in the accident as a result of property damage and/or injury. In other words, auto insurance will help to cover the costs of fixing your car, fixing the other driver’s car, and possibly paying for their medical bills if they’re injured in the accident.
At its core, cyber insurance works similarly. Essentially, it helps people to cover the cost of damages to their organization as a result of a data breach as well as the legal obligations to other people or parties that may have been compromised by the breach. Instead of covering for physical damages or injuries, though, cyber insurance helps to cover the costs of lost revenue, repairing operating systems, recovering stolen data, paying compliance costs, and more.
Why Is Cyber Insurance Important?
Compared to other, more common forms of insurance that are frequently factored into organizations’ annual budgets, cyber insurance is far newer, still much lesser-known, and becoming exponentially more relevant and important with each passing day.
For organizations of all sizes, it is quite common to have a few different forms of insurance at their disposal. A small brick-and-mortar store, for example, may consider commercial property insurance to cover their physical assets in case of theft, a fire, or vandalism. It would also be quite common for that same store to have business income insurance that will help cover expenses after experiencing an interruption in business. Finally, businesses like this one will often have general liability insurance to cover lawsuits or any other claims from a third party. These three types of insurance are so common that they are often included together in what is known as a business owner’s policy (or BOP). Unfortunately for business owners, though, cyber insurance is often not included in a BOP and, as a result, is usually deemed as an afterthought if not completely unnecessary altogether.
When looking at recent malware and data breach trends, though, it becomes abundantly clear that taking the necessary measures to prepare for a cyber-attack is becoming much less of a luxury and much more of a dire necessity. According to the 2021 Thales Data Threat Report, which surveyed 2600 cybersecurity professionals, 45% of companies based in the United States have experienced a data breach at some point in the past. While it remains true that large organizations and corporations are most frequently targeted by cybercriminals, the Thales Data Threat Report also found that well over a quarter of breaches affected small businesses.
The fact of the matter is that nearly everybody is exposed to data liability to some extent, and cyber insurance can be tremendously beneficial in the wake of a data breach. With people and companies becoming more connected than ever before, cybercrime is growing by leaps and bounds and is expected to cost $6 trillion in damages in 2021. By 2025, that figure is estimated to rise to $10.5 trillion. With the threat of cyber-attacks only growing, the need for a financial safety net is dramatically growing along with it.
What Does Cyber Insurance Cover and Who Needs It?
Due to the ever-changing cyber threat landscape, cyber insurance is quite versatile and will provide coverage and assistance to just about any organization, regardless of size or industry. Cyber insurance can provide coverage to any organization that manages sensitive information and/or has their financial information compromised, from small retail operations to hospitals and government agencies. Generally speaking, though, the basic elements of a cyber insurance policy’s coverage remain largely consistent.
Ransomware and Other Malware
Ransomware is very quickly becoming one of the most dangerous (and costly) forms of malware affecting organizational operations as a result of the COVID-19 pandemic. While phishing still reigns supreme for now, according to Verizon’s 2021 Data Breach Investigation Report (DBIR), ransomware accounted for 10% of all data breaches this past year, more than doubling in frequency compared to the year before.
Ransomware is particularly troublesome because of its capability to cause a full-scale business interruption once locking an organization out of its systems. Cyber insurance can help to clean an organization’s systems of ransomware, unlock its systems, and in some cases even help in the negotiation process with the cybercriminal behind the attack.
Related Content: How Ransomware is Thriving and What You Can Do to Prevent an Attack
Perhaps just as important as identifying and eliminating the issue is taking steps to prevent any future breaches in an organization’s systems. Thankfully, having cyber insurance at your disposal can assist in this area as well. Cyber insurance professionals are specialized to identify the root cause of a hack and eliminate any potential weaknesses or misconfigurations in an organization’s systems. After completing a forensic analysis to detect any other breaches, they’ll work to recover any stolen data and help the given organization implement a cybersecurity strategy to prevent future breaches.
Debatably even more important than the first-party services and coverage cyber insurance provides, though, is its coverage for any potential third-party liability. In instances when customers’ sensitive information is compromised, when the insured organization’s systems are used to infect another party’s systems with malware, and any other situation in which the insured organization is deemed liable for data privacy violations or claims of loss or damage, the insured organization will remain covered. Such coverage includes financial loss from business interruption, legal fees, fines incurred as a result of violating data privacy regulations, reputational damages to a third party, and more.
Should You Invest in Cyber Insurance?
If you own a company or help to implement its data security strategy, investing in cyber insurance is something to seriously consider. If your organization frequently handles or stores sensitive information, does not have a thorough cybersecurity strategy in place, or lacks an IT department entirely, purchasing cyber insurance would be a wise first step in protecting yourself, your employees, and your customers from the fallout of having sensitive information compromised.
While it’s true for now that cybercriminals still prefer to target larger organizations and corporations for a bigger payout, cyber insurance is becoming an increasingly important asset even for small and medium-sized business owners. According to IBM and the Ponemon Institute’s 2021 Cost of a Data Breach Report, businesses with fewer than 500 employees suffered an average of $2.98 million in losses as a result of a data breach this past year—a price tag that could easily leave an uninsured small business in financial ruins.