Everything you need to know about cyber insurance

Cyber insurance, As more companies are experiencing an increase in cyber threats, both internally and externally, take cyber risks and prevention more seriously. Cyber insurance is becoming more prominent since the rise of cyberattacks to cover the loss and damages of cyber intrusions. 

When companies can be hit from all directions, I believe security solutions are a must. But if there is a breach, cyber insurance is a safety net that can help recover the costs. Regardless of the defenses you put in place, crafty hackers with innovative kills are coming up every day and always presenting new security challenges that you can’t always be prepared for. It’s better to be safe than sorry if there’s an unpreventable breach. That’s the value of cyber insurance as a second line of defense.

The question now is, what is Cyber insurance? How does it work? What are the things you need to consider when deciding on a cyber insurance policy?

What is cyber insurance?

Cyber insurance is an insurance policy that helps protect organizations from folding up due to cyberattacks. Having a cyber-insurance policy can help minimize business damages during a cyber-incident and its aftermath and potentially cover the financial cost of some elements of dealing with the attack and recovering from it.

Having some form of cyber insurance in place can help a business in the event of an attack. Still, a business is also responsible for its own cybersecurity – the responsibility isn’t just shifted to the insurer.

“Cyber insurance will not instantly solve all of your cybersecurity issues, and it will not prevent a cyber-breach/attack,” says the National Cyber Security Centre.

Who needs cyber insurance?

It’s hard to find a business that doesn’t need cyber liability insurance. It doesn’t matter what type of business your organization is into, any business that collects data is a candidate for a breach, and there are needs for cyber insurance. Also, an organization that relies on technology to conduct its operations.

Private personal data such as contact details of customers or staff, intellectual property, or sensitive financial data are potentially very lucrative to cybercriminals who could attempt to break into the network and steal it.

Two kinds of cyber Insurance policy

The type of cyber liability insurance your business decides on purchasing should always be based on your company’s needs and which entities need protection. When it comes to cyberattacks, the business being attacked is not the only party that can potentially suffer losses. That’s why there are two types of cyber insurance policies that exist.

1. First-party cybersecurity insurance covers the costs associated with being the victim of a hack: everything from notifying clients of the breach to weathering the storm of lost revenue.
2. Third-party cybersecurity insurance covers the risks of being blamed for a breach. This is especially applicable if your company conducts digital security assessments or when a gap in your own security ends up passing a virus on to someone else. For most non-IT businesses, first-party cyber insurance is enough.

What does cyber insurance cover?

Different policy providers might offer coverage of different things, but generally, the cyber insurance coverage will likely cover the immediate costs associated with falling victim to a cyberattack.

Cyber insurance typically covers first-party and third-party claims. Coverage for first-party claims could include costs to recoup damages to your network, notify customers whose data has been breached, and more. Third-party coverage typically extends to lawsuits and penalties for violations of data regulations. For instance, if you experienced a cyber-attack due to negligence, a customer whose data has been breached could have grounds to sue you. A cyber insurer could assist in covering the costs associated with this lawsuit.

Cyber insurance coverage can be as varied as life and car insurance. A company needs to know its vulnerabilities and make sure its coverage is matched to its potential exposure. You can get insight into those vulnerabilities in various ways.

What isn’t covered by cyber insurance?

Some things could be important to organizations that are not covered by cyber insurance, and it’s vital to understand what isn’t covered.

The financial damage caused by loss of intellectual property isn’t covered by cyber insurance, and neither are the reputational costs that can be incurred following a cyberattack.

A cyber insurance policy won’t cover the cost of losing customers due to the bad reputation it picks up as a result of a cyberattack. Some cyber insurance may not protect against insider threats, such as fraud or employee theft, in which case a secondary commercial crime policy may be required.

How much does cyber insurance cost?

No matter what type of insurance policy you are purchasing, certain characteristics of your business are considered the main drivers behind coverage cost.

The cost of a cyber-insurance policy will depend on several different factors like the size of the organization, annual revenue, the industry the business operates in, the type of data that the business typically deals with, and the overall security of the network. For example, some annual policies might cost around $500, while others cost $5,000 or more.

An organization known to have poor cybersecurity or has a previous history of falling victim to hackers or a data breach would likely get charged more for a cyber-insurance policy than one that has a good reputation for keeping itself secure.

Low-risk companies, such as local businesses with a limited customer base, will pay less for their cyber insurance than high-risk companies like hospitals or healthcare facilities that store a large amount of susceptible personal data.

Do you need less or No Coverage if you have security solutions in place?

Having security systems in place is not a replacement for cyber insurance. Systems can fail, humans err, and hackers always find inventive ways to breach business sites and security solutions. New viruses, attacks, and schemes emerge every day. Realistically, you can benefit from both security solutions and insurance.

The future of cyber insurance

Cyber insurance may still be in its infancy, but we have seen rapid growth over the past few years, followed by what we all hope to be a temporary plateau. Insurers are issuing more policies. The amounts of protection are increasing. Unfortunately, cyberattacks have become more frequent and severe.

As the frequency of cyberattacks continues to increase and cybercriminals get more brazen with campaigns, the way cyber insurance operates will evolve. As previously noted, cyber insurance providers are unlikely to want to offer policies to organizations that pay little attention to their cybersecurity.

Paying out an insurance claim is a purely reactive activity and is costly for the insurance provider. That’s why some are starting to take a more proactive approach to cybersecurity, not only there to offer a payout if things go wrong, but actively aiding clients to take a better approach to cybersecurity.