Hidden Costs of a Cyber Attack

A cyber attack can affect—and cost—businesses of all sizes with more or less pronounced ramifications. While the immediate financial impact of a cyber attack is often evident, the hidden costs can be even more insidious.

As per a report by Statista, “Annual cost of cybercrime worldwide 2018-2029,”

The financial impacts of a cyber attack vary depending on the nature and severity of the event. They can range from remediation costs to ransom payments to regulatory fines. Similarly, the hidden costs include reputational damage, loss of customer trust, and operational disruptions.

Here are some hidden costs of a cyber attack

1. Cost of Insurance Premiums Increases

After a cyber attack, firms might have to pay more for cyber risk insurance premiums or even face denial of coverage until certain conditions are met.

The policyholder’s information about the incident plans to improve security, expected litigation, and assumptions about the firm’s cyber security maturity are some of the factors influencing future costs.

2. Rise of Legal and Compliance Costs and Security Investments

Victims of cyber-attacks often face legal actions, including lawsuits from affected customers or partners. Also, they may incur penalties for failing to follow data protection regulations, leading to legal expenses and fines.

Moreover, after an attack, there is usually a push to strengthen cyber security measures to prevent future incidents. This means investing in new tech, training staff, and sometimes hiring more security experts, which can be expensive.

3. Operational Disruptions

After a cyber attack, firms focus on containing the breach and securing data. But, the attack can disrupt business operations, leading to downtime. The costs associated with rebuilding operational capabilities are rising as firms might need to-

• repair equipment and facilities
• build temporary infrastructure
• divert resources from one part of the business to another
• increase current resources to support alternative business operations and replace the shut system functions.

The nature of operational disruption is specific to each situation. So, to calculate its impact, firms require an understanding of many distinct information components.

Also read: How CIOs Can Curb Costs to Recession-Proof Businesses

4. Depreciation of Trade Name and Value of Customer Relationships

The devaluation of a trade name is an intangible cost category that refers to the loss in value of the names, marks, or symbols a firm uses to discern its products and services.

To determine the financial impact of a cyber incident on the value of a firm’s trade name, companies must assess the value of the trade name both before and after the cyber-attack.

Moreover, tracking and quantifying the number of customers lost after the attack becomes tough. Firms will have to assign “value” to each customer to quantify how much they must invest to acquire that customer.

5. Loss of Intellectual Property

In attacks where sensitive data is stolen, firms lose their competitive edge and revenue if IP falls into the wrong hands, causing irreparable economic damage to the company. Loss of IP means losing control over trade secrets, copyrights, and other proprietary and confidential data. The loss is hard to quantify but can profoundly impact innovation and market positioning.

What Next?

To overcome the hidden costs of a cyber-attack, firms should adopt a strategic approach that addresses immediate and long term repercussions.

• Invest in Robust Security Measures

Implement advanced security practices such as encryption, MFA, and regular security checks. This investment helps prevent cyber-attacks and reduces the potential financial and reputational damage.

• Develop an IRP

A clear response plan enables a firm to contain a cyber-attack quickly. This plan should include containment, eradication, recovery procedures, and communication strategies for better management.

• Strengthen Legal and Compliance Frameworks

Firms must understand and comply with all relevant data protection regulations. This includes regular audits and policy updates as regulations evolve, reducing the risk and impact of legal and compliance costs.

• Enhance Risk Insurance Coverage

Evaluate and adjust the cyber risk insurance policy. Ensure it covers the most relevant and significant risks, including the costs associated with reputational damage and operational disruptions.

• Develop a Business Continuity Plan

Prepare for the worst-case scenario. Create a robust business continuity plan that outlines how to maintain operations during and after a cyber-attack. This plan should detail the steps to minimize downtime and operational disruptions.

• Engage in Customer Trust Rebuilding

Act quickly and communicate with the customers about the nature of the breach. Let them know the data affected and the steps to remedy the situation and prevent future incidents.

• Evaluate and Protect IP

Regularly audit and assess the value of the IP. Implement stringent access controls and data rights management to prevent unauthorized access and theft.

Also read: Hidden Financial Costs of Security Orchestration

Conclusion

While the direct costs of a cyber-attack can be substantial, the hidden costs often pose a more significant challenge to businesses. These include increased insurance premiums, legal and compliance costs, operational disruptions, loss of customer relationships, and potential IP loss.

Firms must adopt a strategic approach to cyber security to manage these risks effectively. This includes investing in robust security measures, developing an IRP, strengthening legal and compliance frameworks, enhancing risk insurance coverage, and engaging in customer trust rebuilding efforts.

By taking these steps, firms can reduce a cyber attack’s immediate and long-term financial impact, reinforcing their resilience against future threats.