Cyber-insurance is a boon to various industries to have a minimal financial, reputational, or legal impact due to full-blown cyber-attacks. In this blog, let’s examine cyber-insurance, the types of policies available for enterprises, and the benefits and pitfalls of purchasing cyber-insurance coverage. Moreover, the article also takes a deep dive into which businesses need a cyber-liability policy and the parameters to consider before making a final purchase decision.
What Is Cyber Insurance?
Cybersecurity insurance (cyber-insurance) is a service offered by the insurance industry that helps businesses to reduce the impact of cybercrime threats and risks such as cyberattacks and data breaches. Buying a cyber-insurance policy allows enterprises to protect themselves from the cost arising due to full-blown cyberattacks that cripple IT infrastructure, data governance, and network policy. These attacks are not usually covered by traditional liability insurance.
Cyber-liability insurance coverage works similarly to enterprises’ traditional liability insurance against physical threats and natural calamities. A cyber-liability policy covers losses arising from a successful cyberattack.
What are the benefits and pitfalls of cyber insurance?
Cybersecurity Insurance Cons
Here are a few pitfalls of buying cybersecurity insurance:
- Limited Coverage
Many SecOps teams might not have sufficient liability coverage to stay secure. Cyber-insurance covers claims of sophisticated threats like ransomware and others for which most businesses do not adopt.
Also Read: VPN: A Fallacious Cyber Threat Countermeasure?
- Cybersecurity Insurance Premiums Can Be Costly
As the cybercrime industry is tremendously growing, there is a surge in successful cyber-attacks that cripple business operations. Moreover, even amateur cybercriminals can accomplish successful cyberattacks with the easy availability of cybercrime-as-a-service. All of these factors have significantly increased cyber-insurance premiums.
- Lack of Trust
It can be challenging for decision-makers to convince board members to purchase cyber-insurance. Many businesses have distrust, which can hinder the buy-in process. Many cybersecurity decision-makers do not consider cyber-liability insurance a proactive measure against threats.
Cybersecurity Insurance Benefits
Purchasing a cybersecurity insurance policy will significantly benefit businesses in various ways.
- Data Breach Liability Coverage
Various cyber-insurance providers cover the cost of security fixes, identity theft protection, and organizations impacted due to any cyber-attack from legal litigations.
- Business Disruption Reimbursement
Cyber-liability insurance policies cover losses caused due to business disruption during the attack.
- Legal Aid and Media Relations
The best vendors offer enterprises legal assistance during and after a cyber-attack. Legal litigations can be a costly expenditure which these cyber-insurance providers help with. Moreover, they even offer assistance like managing the media and customers to have minimum impact on the brand image.
What are the Types of Cybersecurity Coverage?
Cybersecurity insurance vendors usually offer first-party or liability coverage policies to secure companies in various circumstances due to a cyber-attack. Businesses in the IT industry might have to consider a different cyber-insurance coverage plan related to technology errors and omissions to prevent information loss.
First-party coverage, Third-party or cyber-liability coverage, and Technology errors and omissions are the three types of cyber insurance available that businesses can consider based on their needs and potential risks.
● First-Party Coverage
Incident investigation, future cyber-incidents risk assessment, and losses that occurred due to business disruption are a few costs that First-party cybersecurity insurance covers. A few vendors will even cover ransomware extortion payments depending on coverage limits. The best cyber-insurance provider even notifies the clients about the cyber-incident and offers anti-fraud services like credit monitoring to secure their personal information from exploitation. Data breach insurance is one of the most common first-party cybersecurity coverage available.
● Third-Party or Cyber Liability Coverage
Purchasing third-party cyber-insurance protects businesses if a third party presses legal litigation for the damages caused due to a cybersecurity incident. Such insurance covers all the attorney and court costs related to legal proceedings, settlements, and noncompliance regulatory fines. General liability insurance does not cover liability claims on successful data breaches. Businesses that gather, store and process sensitive customer data should consider a separate cyber-liability insurance policy.
● Technology Errors and Omissions
A technology error and omissions, or E&O, will be beneficial if a cybersecurity incident occurs on a client’s business due to an error on the vendor’s part. Business decision-makers must buy E&O cyber-insurance coverage if they offer a technology product or service.
For instance, if a client’s sensitive data is stolen from the computer, first-party or liability insurance will offer the coverage. Suppose the enterprise is into offering HRMS software, and a glitch steals or loses the client’s sensitive data. In that case, such organizations need E&O cyber-insurance coverage to cover the liabilities. This cyber-insurance cover covers legal and court costs or settlements but only for cyber-incidents related to products or services.
Which Businesses Need Cyber Insurance?
Regardless of the business type, industry, or size, enterprises with sensitive business and customer data should consider buying a Cyber-liability policy. All those businesses that generate, store, or manage data electronically can benefit from buying a cyber-insurance cover. Sensitive client information includes contact details, purchase records, personally identifiable information (PII), and credit card details. Businesses that store such sensitive data are the prime targets of cybercriminals. Even E-commerce enterprises can purchase cyber-insurance as proactive cybersecurity measures.
How Much Does Cyber Insurance Cost?
Factors like the organization’s annual revenue, the industry it deals in, and the type of data it holds influence the cost of cyber insurance. Sectors that are prime cybercrime suspects will have to pay higher cyber-insurance premiums. Enterprises that store personal data in finance and healthcare are at higher risk than any other sector. Business owners can execute a vulnerability test on the entire business network and get a quote for cyber-insurance coverage.
Will Cyber Insurance Replace a Security Strategy?
Many business owners might consider cyber-insurance a magic bullet for a data breach. However, it is not the case; it is just a proactive cybersecurity strategy that supplements the defense mechanism. Decision makers should consider reading the terms and conditions of the insurance policy before making a purchase decision. A successful data breach can be costly for enterprises, and buying Cyber insurance will not cover future revenue generated from the latest released products and business growth. Businesses cannot calculate the negative impacts on the brand image because of a successful cyber-attack. Hence cyber-insurance will never replace cybersecurity defense measures. Organizations need a robust cybersecurity posture to minimize exposure to cyber threats and risks. Moreover, businesses also need an effective threat detection and mitigation policy that helps identify real-time threats to minimize the damage.
What are the Things to Consider While Buying Cyber Insurance?
Purchasing cyber-insurance will be expensive for organizations, and they need to make wise decisions to make the most out of the investment. Business leaders need to evaluate their risks and impact on the operations to understand what type of insurance they would require to minimize the impact. Various cyber-insurance vendors offer a wide range of policies with various coverage options. Decision makers should consider reviewing the insurance carriers and broker’s policy coverage before making a purchase decision. Ensuring that cyber-insurance providers have enough appetite to handle potential business risks is crucial.
Here are three crucial stages that can help to make an accurate decision
- Understand whether the maximum loss of a successful cyber-attack is affordable for the business.
- Evaluate the likelihood and frequency of losses.
- Ensure that the cyber-premium charges are worth paying.
Once the business decision-makers have all the required information, they can pitch it to the stakeholders to make the final call.
One crucial aspect that leaders need to consider is that insurance coverage might not cover all cyberattacks, especially incidents that arise from a nation-state actor. The cyber-insurance vendors consider such instances as acts of war and do not cover them. Before making the final purchase decision, CISOs should consider another factor: they also need a robust defense mechanism. Buying insurance coverage from multiple providers does not mean they are insured from all the losses due to the cyber-attack. Evaluate the insurance policy coverage using the generic value matrix to ensure the business has adequate coverage to restore business operations quickly.
Also Read: Cybersecurity and the Internet of Things: Risks and Solutions
FAQs
What Does Cyber Insurance Cover?
Cyber-insurance coverage policies have become diverse to satisfy market and consumer needs. Based on multiple factors, they have refined their details concerning what the policy might cover and what it cannot. The cybersecurity insurance coverage covers the losses due to business disruption, digital asset destructions, system failure, ransomware extortion, breach response, and mitigation costs during the cyber-attack. It is crucial to consider that not all policies are equal and cover all the costs in one policy. Business owners need to consider their needs and risk appetites to choose cyber-insurance.
What Does Cyber Insurance Not Cover?
Cyber-insurance policies usually exclude preventable cyber-incidents or incidents that result from human error or negligence. For instance, it will not cover cyber-attack claims resulting from poor security processes. A security incident happened before the purchase of the policy. If the organization is a victim of an insider attack, such claims will not be covered. Moreover, most cyber-insurance coverages do not cover cyberattacks that erupted due to preexisting vulnerabilities. Any claims related to optimizing technology systems, like hardening attack surface areas of applications and networks, are not covered.
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