What is Cyber Insurance and Does Your Small Business Need It?


what is cyber insurance

What is cyber insurance? Recent numbers tell the story of data breaches and SMBs. The Allianz Risk Barometer says global businesses are more worried about cyber risks than even the pandemic.

So what does an enterprise do? How do they protect their hard-earned assets from a cyber attack? Or a data breach that costs?

Here are some more small business data breach statistics to consider. Cyber insurance is the answer and here’s everything you need to know to protect your business.

What is Cyber Insurance?

These policies look after your SMBs’ cyber liability for data breaches when sensitive information like customers’ credit card numbers get hacked and stolen. They look after recovering from data loss too. And repairing a computer system after cyber attacks. The cost of a data breach can be serious.

The public relations costs can be big after a cyber event. That’s why this kind of insurance company will let customers know when there has been a breach. Here are some business insurance benefits you won’t want to overlook.

what is cyber insurance

Why Cyber Insurance for Small Business is so Important

Cyber coverage is vital because you don’t want to be swamped by legal fees if there’s a hack. And because the best way to protect businesses is to be proactive when it comes to cyber threats. Like a data breach.

Here are five more reasons you need to guard against these cyber risks with comprehensive policies.

  • You Get Coverage For Stolen or Lost Devices: Cyber liability insurance covers tablets, mobile phones and laptops. Not just from malware-type cyber events. But from theft and loss.
  • You Get Forensics: Great network security coverage can determine how bad a breach is. Forensic services can uncover cyber incidents caused by employees or insiders.
  • You Get Protection From Hacking and Viruses Damage: A business interruption clause can cover lost income. Modern businesses need this cyber policy to cover compromised data too.
  • You Get Theft and Data Corruption Coverage: Data recovery after a hack is essential. Especially when company data and/or customer information is affected.
  • You Can Get PR Help: Good insurance policies can help rebuild your brand. Another reason to get business insurance like this.

What is Covered by a Cyber Insurance Policy?

In the age of digital evolution, cyber threats pose a formidable risk to businesses. A cyber insurance policy serves as a protective shield against these risks. While policies may vary, here’s a deeper dive into five key coverages that are often included:

Privacy Liability Coverage

In the era of information, safeguarding user data is paramount. Privacy liability coverage is designed to protect businesses from potential lawsuits arising from data breaches.

Should unauthorized entities access and exploit consumer data, the company can face consumer class action litigation. This coverage ensures that such legal challenges, which can tarnish a company’s reputation and drain its finances, are well managed.

Network Security From a Cyber Attack

Cyberattacks, like ransomware or data breaches, can cripple a company’s operations and trustworthiness. Cyber security insurance steps in during such crises, covering the aftermath of network security failures.

Whether it’s a sophisticated social engineering attack, cyber extortion, or any other form of digital threat, this insurance covers not only the reparations to third parties but can also shoulder first-party costs, like internal investigations and system repairs.

Media Liability

In today’s age, online advertising is omnipresent. However, this realm brings its own set of challenges. Media liability coverage protects businesses against claims arising from online content, particularly in cases of unintentional intellectual property infringement.

Whether it’s the use of copyrighted images or inadvertently mirroring someone else’s ad campaign, this coverage ensures peace of mind in the dynamic digital ad space.

what is cyber insurance

Network Business Interruption Coverage

Operational hiccups due to cyber incidents can halt business processes, leading to significant financial losses. When a system fails, be it due to flawed software or a cyber-attack, network business interruption coverage can be a lifesaver.

It ensures that businesses have the necessary financial support to get back on their feet after being hacked, mitigating losses from halted operations.

Errors and Omissions

Every business operates under a set of commitments and contracts. A cyber incident might inadvertently lead to a breach of these contracts.

Errors and omissions coverage is designed to protect businesses against the legal and financial implications of such unintentional breaches, ensuring that inadvertent oversights don’t lead to substantial losses

Comparison of Cyber Insurance Coverage

To get a clearer picture of the specifics of cyber insurance coverage, here’s a side-by-side comparison of what is typically covered and what is not:

Covered by Cyber InsuranceNot Covered by Cyber Insurance
Privacy Liability CoverageLoss of Future Profits
Network Security From a Cyber AttackLoss of Value
Media LiabilityUpgrades
Network Business Interruption CoverageReputational Damage Costs
Errors and OmissionsIntentional Acts & Internal Misconduct

what is cyber insurance

What is Not Covered by Cyber Liability Insurance?

Like with traditional insurance policies, cyber insurers don’t cover everything. Here are some items left out.

  • Loss of Future Profits. Cyber liability insurance doesn’t cover lost profits. Even when there’s been a breach.
  • Loss of Value. When intellectual property is stolen and your businesses’ value suffers, there’s no coverage.
  • Upgrades. These aren’t covered either. Not even after a breach.

Read More: how much does business insurance cost

How Much is Cyber Insurance Cover?

What cyber insurance covers is important, but it needs to be balanced with cyber insurance costs. There will be differences based on options and business size. But a respected company like Insureon brings the median cost in at $140 per month.

There are lots of variances. However, you can get $25,ooo worth of coverage for anywhere from $25 to $50 monthly.

what is cyber insuranceHow Much Cyber Insurance Cover Should Small Businesses Have?

How much cyber insurance coverage do you need? Enough to cover a small business from cyber exposures if:

  • You are storing credit card data for customers or patients.
  • You’re a business using point-of-sale systems.
  • You provide hardware or software services.
  • You store data on computers or in the cloud.

Many small businesses spend around $1 million. Check out these types of business insurance.

How to Choose the Right Cyber Insurance for Your Business

Here are some tips for choosing the right insurance company. Remember the cyber insurance market has a lot to sort through.

  • Understand Third-Party Risk – A good insurance provider deals with supply chain vulnerabilities. Check out their underwriting guidelines.
  • Ask About Coverage – Get the details on the cyber insurance policies. Most cover both first-party coverage and third-party damages. Ask what happens if there’s a regulatory investigation.
  • Find Out About Exclusions – Ask an insurance company about the term “avoidable risks” and how that applies.
  • Ask About Response Times – You need to be fast when there’s been a breach.

How to Get Get Cyber Risk Insurance for Your Small Business

Understanding how to get a cyber insurance quote starts with following these steps. Beyond price and policies, you need to check the following cyber security boxes.

Remember to look for what are called silent cyber clauses in traditional policies.

Forensic Expenses

In the aftermath of a cyber incident, understanding its magnitude and implications is crucial. Forensic expenses cover the costs of expert security analysts who delve deep into the digital realm to unravel the mystery behind the breach.

Through a meticulous examination, they aim to determine the nature and extent of data compromised. By analyzing system vulnerabilities and breach points, they offer insights, helping businesses understand the scope of the attack and strategize their subsequent responses.

Legal Expenses

When a technological error leads to data breaches, the legal ramifications can be complex and daunting. Legal expenses coverage is designed to assist businesses in addressing claims arising from state and federal notification breaches.

With evolving cyber laws and regulations, navigating the intricacies of legal claims becomes a challenging endeavor.

This coverage ensures that businesses have the necessary financial backing to manage legal fees and defense costs, minimizing potential reputational and monetary damages.

ID Theft Repair/Credit Monitoring Expenses

Identity theft can leave affected individuals feeling vulnerable and violated. It’s paramount for businesses to respond proactively by offering services like ID theft repair and credit monitoring to their affected clients.

This not only aids in data restoration but also goes a long way in rebuilding trust.

By keeping a close watch on credit activities and flagging suspicious transactions, these services act as a reassuring safety net for those impacted, ensuring their financial well-being remains uncompromised.

Liability Costs

While regulatory investigations are a significant aspect of liability costs, the implications run deeper. Businesses must be prepared to face potential class-action lawsuits from stakeholders affected by the breach.

These lawsuits can be financially draining and harm the company’s image. Liability cost coverage in a cyber insurance policy is a shield against such unforeseen challenges.

It provides a comprehensive safety net, covering everything from legal defense fees to settlement costs. Ensuring that a business is protected on all fronts is vital, making this coverage a pivotal component of a robust cyber insurance policy

Make sure you have all of the above in a cyber liability insurance quote.

Understanding the Claims Process in Cyber Insurance

The aftermath of a cyber incident can be chaotic and stressful for any business. Knowing how to navigate the claims process in cyber insurance can significantly mitigate this stress and expedite recovery. Here’s a closer look at the steps involved and key considerations:

Immediate Steps Following a Cyber Incident

  • Notification: Promptly notify your cyber insurance provider about the incident. Early communication is critical to ensure you comply with the terms of your policy and to activate the support services included in your coverage.
  • Incident Documentation: Begin documenting the incident immediately. This includes the time and date of discovery, how the breach was detected, the type of data compromised, and any steps already taken. Comprehensive documentation supports your claim and aids in the investigation.
  • Engage with Assigned Experts: Insurers often provide access to a network of cybersecurity experts as part of the policy. Engaging with these professionals early can help in accurately assessing the incident and taking effective remedial actions.

Navigating the Claims Submission Process

  • Gather Required Information: Compile all necessary documentation, including evidence of the breach, logs, affected systems, and any communication with third parties about the incident. Your insurer will provide a list of required documentation.
  • Complete the Claims Form: Fill out the claims form provided by your insurer with detailed information about the incident and its impact on your business. Accuracy and thoroughness are crucial here.
  • Assessment and Investigation: The insurer will assess your claim, which may involve an investigation into the breach. This process can vary in length, depending on the complexity of the incident and the clarity of the information provided.

Post-Claim Considerations

  • Follow-Up Actions: Your insurer may recommend or require specific follow-up actions as part of the claim settlement. This could include implementing additional security measures or engaging in public relations efforts to manage reputational damage.
  • Claim Settlement: Once the assessment is complete and any required actions are taken, the insurer will proceed with the claim settlement. Understanding your policy details, such as deductibles and coverage limits, is essential to gauge the extent of compensation.

Evaluating the Return on Investment (ROI) of Cyber Insurance

Investing in cyber insurance requires a careful analysis of costs versus benefits. Evaluating the ROI of cyber insurance involves considering not only the financial aspects but also the strategic value it brings to your business.

Direct Financial Benefits

  • Cost Avoidance: Compare the costs associated with potential cyber incidents — including legal fees, fines, and remediation costs — against the premium and deductible of your cyber insurance policy. Savings in these areas can represent a direct ROI.
  • Business Continuity: Factor in the value of business interruption coverage. By compensating for lost income during downtime, cyber insurance helps ensure business continuity, a benefit that can significantly outweigh the cost of premiums.

Indirect Benefits and Strategic Value

  • Reputational Protection: Assess the value of crisis management and PR support offered by cyber insurance. While difficult to quantify, preserving your business’s reputation can have long-lasting financial benefits.
  • Compliance and Competitive Advantage: In industries where data protection is heavily regulated, cyber insurance can be a compliance asset. Additionally, demonstrating that you are insured can give you a competitive edge by building trust with clients and partners.

Long-Term ROI Considerations

  • Adaptability to Emerging Threats: Consider the insurer’s willingness to adapt coverage as new threats emerge. A policy that evolves with your business’s needs can provide ongoing ROI compared to static coverage options.
  • Cybersecurity Improvement Incentives: Some insurers offer premium discounts for businesses that implement specific cybersecurity measures. These incentives not only reduce the cost of insurance over time but also contribute to a stronger security posture.

Evaluating the ROI of cyber insurance is a multifaceted process that extends beyond immediate cost savings. It requires a comprehensive view of how insurance supports your overall risk management strategy, protects against financial loss, and contributes to the long-term resilience and reputation of your business.

Is data breach insurance the same as cyber insurance?

No. There is a difference you need to be aware of. Cyber insurance looks after cyber risk from first-party and third-party incidents. Data breach insurance covers damage to data.

Read More: best small business insurance companies

Image: Depositphotos


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Rob Starr Rob Starr is a staff writer for Small Business Trends and has been a member of the team for 7 years. He is a graduate of Ryerson University in Toronto with a Bachelor of Journalism degree. His print credentials include employment with various Toronto area newspapers and three works of fiction: The Apple Lady (2004), Creekwater (2006) and Sophistry By Degrees (2008) published by Stonegarden Press In California.

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