What are your odds of experiencing a cyberattack? Chances are they’re higher than you think. That’s why businesses need to ask, “what is cyber insurance?”
Let’s put it this way: The odds of getting attacked by a shark are about one in 3.75 million. The likelihood of experiencing a cyberattack is one in four.
That’s an alarming statistic and is why more businesses are turning to cyber insurance as part of their cybersecurity measures.
It’s nearly impossible for a business to be successful without an online presence. For many, doing business online brings numerous advantages, including selling products and services, reaching new markets, and engaging with customers.
But with those advantages comes risk.
With the amount of online business now, it’s no surprise that the number of cyberattacks on businesses continues to increase yearly. While it’s essential to utilize best practices to protect your business, the unfortunate reality is that there is no guaranteed way to avoid cybercrimes since cybercriminals continue to find ways to bypass protections.
That’s why having cyber insurance is becoming increasingly vital for businesses to protect themselves from potential financial losses caused by cyber incidents.
Cyber insurance, also known as “cyber liability insurance,” is an insurance policy that covers the losses a business may encounter following a cyber-related security breach.
Some of the key cyber threats that cyber insurance will typically respond to include data breaches, insider or third-party attacks, cyberextortion, malware, social engineering attacks, and more. Cyber insurance also provides protection for liability claims and ancillary expenses associated with a cybersecurity breach.
Recovering from cyber-related incidents can get expensive quickly, but having cyber insurance minimizes that financial burden.
Every business that manages data online is at risk of a cybersecurity incident. Whether it’s a large and established corporation, tech startup, or independent financial consultant, all businesses with a digital footprint should have protection from cyber incidents.
Though cyberattacks on major corporations make headlines, small businesses across the country are just as vulnerable to cybercriminals’ activities. In fact, recent research has shown that 43% of cyberattacks target small businesses, yet only 14% are prepared to defend themselves.
What’s more, businesses that store customer data — such as names, addresses, credit card information, and banking details — on a network need to be aware of their regulatory and contractual obligations to keep information secure. Some industries, like law and health care, have strict regulatory standards that must be followed. Cyber insurance can help businesses ensure they are compliant with regulations.
But that doesn’t mean only businesses in industries with strict regulations should have cyber insurance. A cyber insurance policy can help any business ensure it is meeting its legal responsibilities for protecting sensitive information.
While cyber insurance is still viewed as a newer insurance product among commercial coverage offerings, it’s no longer just a “nice-to-have” policy. It’s a must-have.
According to the Federal Communications Commission: “Theft of digital information has become the most commonly reported fraud, surpassing physical theft.”
The rate of cybercrimes has increased exponentially in recent years, and 2023 was a particularly bad year for cybercrime activity, with cybercriminals proving they will continue to find new ways to circumvent security measures.
An Apple-commissioned study “found clear and compelling proof that data breaches have become an epidemic, threatening sensitive and personal consumer data the world over.” The study, “The Continued Threat to Personal Data: Key Factors Behind the 2023 Increase,” notes that in the first eight months of 2023, 360 million people were victims of corporate and institutional data breaches. And according to a study by Cybersecurity Ventures, a cyberattack took place every 39 seconds in 2023. That’s up from the 2022 data, which found an incident occurred every 44 seconds.
But it’s not just the increased rate of cyber incidents that businesses need to be aware of and take measures to protect against. Because as the number of breaches increases, so do the associated costs.
The latest IBM Cost of a Data Breach report revealed that the global average data breach cost reached $4.88 million in 2024, a 10% increase from the previous year.
On a global scale, cybercrime is expected to cost $9.5 trillion this year, according to Cybersecurity Ventures, which has projected the damages will reach $10.5 trillion by 2025.
Most businesses find it difficult to anticipate and plan for the costs of a data breach, which can last for months or even years. Cyber incidents have significant financial consequences that can easily jeopardize a business, which is why cyber insurance is a vital risk mitigation strategy for all businesses.
As mentioned, a cyber insurance policy enables businesses to transfer the potential costs of a cybersecurity event to their insurance provider.
Every comprehensive cyber insurance policy should include coverage for:
- Notification expenses: Any business that encounters a cybersecurity incident is responsible for identifying and notifying potential victims, which requires an investigation.
- Credit monitoring services: Cyber insurance pays for costs associated with credit monitoring victims of a cyber incident at your business.
- Computer forensics: Once a cyber incident is identified, determining what happened, how, and the scope is crucial. The expenses of hiring a computer forensics specialist are covered.
- Reputational damage: Reputational fallout after a cyber incident can have a drastically negative impact. You’ll want to ensure that a cyber insurance policy covers public relations and crisis management expenses.
- Digital asset loss: This pertains to the loss of digital assets, such as cryptocurrencies, intellectual property, or digital media.
- Ransom demands: With cyberextortion, cybercriminals often demand payment from victims to have data restored. Cyber insurance coverage can help businesses cover the costs of ransom demands.
- Legal expenses: If you get sued by clients or partners affected by the breach at your business, are you prepared to cover the legal costs and damages? With a robust cyber insurance policy, you won’t have to worry about that.
- Business interruption: This is for coverage if your business needs to close temporarily due to a cyber incident.
- Recovery, remediation, and restoration: Cyber insurance policies can help cover the expenses for recovering from an attack and restoring systems to get operations back up and running.
One of the unique aspects of cyber insurance is that it has two coverage categories: first-party and third-party.
First-party cyber insurance is designed to protect a business from losses directly resulting from a cyber incident. It addresses the financial impact on a business’s operations, assets, and reputation and would cover expenses for things such as data recovery, incident response measures, business interruption, and reputational harm. This coverage would apply if your business’s network is compromised and customers’ personal information is stolen.
Any business that handles digital data should have first-party coverage to protect against the expenses that may arise if their network is hacked.
On the other hand, third-party coverage protects businesses that offer professional services from claims made against them by third parties, such as clients, customers, and partners. Expenses covered by third-party coverage include legal fees, settlements, regulatory fines, and damages awarded to affected individuals.
Third-party coverage provides businesses with peace of mind by protecting them from the potential financial burden of legal claims and liabilities resulting from a cyber incident.
Your insurance broker can help explain the coverage options best suited for specific business.
Despite constant headlines about the increasing threat of cyber-related incidents on businesses, many continue to question the value of cyber insurance.
Below are some common misconceptions about cyber insurance:
Cybercriminals don’t target small businesses.
We’ve already touched on this one a bit. But it’s hands-down the most common misconception about cyber insurance, so we wanted to highlight it again. Cybercriminals don’t discriminate when it comes to the businesses they target. Research has even found that cybercriminals are three times more likely to target small businesses than larger companies.
My business can’t afford cyber insurance.
While cyber insurance is an additional expense, your business likely can’t afford to not have it. Consider that the average cost of a cyber ransom payment was $1.54 million in 2023. The cost of a cyber-related incident is far greater than the cost of cyber insurance.
I don’t need cyber insurance because I have a cyber risk management strategy.
That’s excellent news because cyber risk management is crucial in today’s business landscape. However, cyber insurance is not a replacement for a cybersecurity strategy. Instead, cyber insurance is a way for businesses to transfer financial risk if and when cybersecurity measures are compromised or fail.
I already have coverage for cyber incidents through my existing insurance policy.
Business insurance policies like general liability and errors and omissions don’t offer the same protections as cyber insurance. While these are essential policies for businesses to have, they shouldn’t be viewed as a substitute for cyber coverage.
No two businesses are alike, and each has unique coverage needs. That’s why it’s crucial to find an insurance provider that offers cyber policy options tailored to your specific needs.
One of the most important things to look for in a cyber insurance policy is what’s included under the policy in the event of a cyber incident and whether any specific incidents are excluded from coverage.
For example, a study conducted by Sophos found that 84% of respondents had cyber insurance. Yet only 64% said their policy covered ransomware attacks. That’s a crucial gap, considering that as of 2023, 72% of businesses worldwide have been affected by ransomware attacks.
When choosing a cyber insurance policy, details matter. Take time to ensure the coverage you get will meet the needs of your business and not leave you scrambling to cover unexpected costs if a cyber catastrophe hits.
Want to learn about cyber insurance options for your business? Contact our team of expert brokers at any time to find out how you can protect your business from being financially hindered by cyber-related incidents.
