Who Needs Cyber Insurance? Navigating Its Costs

Cyber insurance protects against financial fallout from cyber threats and data breaches.

It covers costs like notification, credit monitoring, and legal liabilities.

It also includes losses from business interruptions, data restoration, and dealing with ransomware.

The aim is to offer financial support for recovery, including legal defense and crisis management.

Cyber coverage policy complements cybersecurity measures and risk management strategies.

Who Needs Cyber Insurance?
Image source (Piktochart)

Who needs cyber insurance and why?

Consider cyber insurance to protect against financial losses from security breaches.

Small businesses are frequent targets due to weaker security controls.

Securitymagazine.com reports that 43% of cyberattacks target small companies, leading to expensive consequences in lost productivity and damaged reputation.

The article notes that 60% of small firms experiencing a data breach close permanently within six months.

What risks does cyber insurance cover?

Cyber insurance typically covers costs associated with cyber-related incidents, including legal expenses and fines. Examples of typical insurance clauses include;

  • Data breach or incident response and crisis management.
  • Data privacy liability.
  • Cyber extortion.
  • Network business interruption.
  • Data asset protection.
  • Network security liability.
  • System failure, and more.

Does cyber insurance cover major cybersecurity events?

Certain cyber insurance policies cover significant cybersecurity events like ransomware attacks, DDoS attacks, data breaches, and other cyber incidents.

While specifics on major claims are scarce, the average cyber insurance claim stands at around USD 345,000, according to NetDiligence.

What isn’t covered by cyber insurance?

Cyber insurance policies vary, and businesses must review them carefully. Here are some common exclusions:

  • Nation-State Attacks: Some policies exclude coverage.
  • War and Terrorism: Damages may not be covered.
  • Bodily Injury and Property Damage: Often excluded.
  • Criminal Acts by Insured: Coverage may be denied.
  • Unapproved Third-Party Vendors: Incidents may not be covered.
  • Failure to Implement Security Measures: Limited coverage if security measures are not followed.
  • Pre-existing Conditions: Excludes losses related to known vulnerabilities or breaches before the policy’s effective date.
  • Losses from Physical Events: Damages from natural disasters may not be covered.
  • Intellectual Property and Trade Secrets: Limited coverage for theft or breaches.
  • Fines and Penalties: May not cover regulatory fines.
  • Social Engineering and Employee Fraud: Limitations exist.
  • Data Loss without Breach: Some policies focus on breaches only.

Businesses should work closely with insurers and legal advisors to understand terms and identify coverage gaps. Regular policy reviews are advisable to address evolving cyber threats.

The cost of cyber insurance and its future

Who needs cyber insurance
Cyber-insurance protects businesses from Internet-related risks and IT-related issues not covered by standard liability policies. It includes coverage for data destruction, extortion, theft, hacking, and liability for errors, omissions, data breaches, or defamation. Additional benefits may include security audits, post-incident PR, investigative expenses, and criminal reward funds: Photo source (NerdWallet)

The cost of cyber coverage policy depends on factors like company size, industry, and coverage level.

Policies range from a few hundred to several thousand dollars per year. In 2021, the average cost in the U.S. was $1,589 per year or $132 per month.

The demand for cyber coverage policy is growing. Businesses rely more on digital tech, and remote work increases risks.

Cyber policies must adapt to evolving threats like ransomware and AI attacks.

In 2020, the global cyber coverage market was $7.8 billion, projected to reach $20 billion by 2025.

Read more: What is Umbrella Insurance for Business?

What can companies do to reduce cyber insurance premiums?

Companies can reduce cyber liability coverage premiums by:

  • Establishing well-documented security policies.
  • Having a tested incident response plan.
  • Conducting regular security awareness training.
  • Implementing multi-factor authentication.
  • Enforcing clear access controls.
  • Performing penetration tests and vulnerability scans.
  • Employing an automated patch management solution.
  • Following best practices for data backup and recovery.
  • Using a real-time auditing solution for detection, alerts, and response to anomalous events.

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