What is cyber insurance? What’s covered and what’s not

With security breaches on the rise, cyber insurance has become a crucial part of business risk management. In this article, we explore the concept of cyber insurance, what it covers, and why companies should consider obtaining it.

Understanding cyber insurance and its importance for businesses

Cyber insurance is a specialized insurance product designed to protect businesses from financial losses from cybersecurity incidents such as data breaches, ransomware attacks, and other cyber threats. As cybercrime continues to increase, companies face greater risks of falling victim to such incidents despite implementing cybersecurity measures.

This type of insurance helps minimize the financial impact on businesses by covering various expenses incurred as a result of a cyber attack, including investigation and forensic analysis to determine the cause and extent of the breach, notification costs to inform affected parties or regulatory authorities, legal fees associated with defending against lawsuits and regulatory actions, and more.

For example, suppose a company experiences a data breach resulting in the theft of customer information. In that case, cyber insurance would help cover the costs of investigating the breach, notifying affected individuals, and implementing measures to prevent future incidents. Additionally, if the breach leads to lawsuits or regulatory fines, cyber insurance would provide financial assistance in covering legal expenses and penalties.

Who needs cyber insurance?

Any business that relies on laptops, smartphones, or other computer technology should consider cyber insurance, as they are susceptible to cyberattacks that can result in significant costs, operational disruptions, and reputational harm. Also, cyber insurance is critical for businesses storing sensitive data like health records, credit card numbers, or social security numbers.

Overall, cyber insurance is a crucial risk management tool for any business operating in today’s digital landscape. It provides financial protection and peace of mind, allowing companies to mitigate the potentially devastating financial consequences of cyber attacks.

What does cyber insurance cover?

Cyber insurance coverage is tailored to meet the specific needs of businesses, taking into account factors such as the type of data stored and the industry in which the business operates. These policies typically offer options for both first-party and third-party coverage to address various aspects of cyber risk.

First-party coverage pertains to the direct losses incurred by the business itself, including expenses related to data recovery and system restoration. On the other hand, third-party coverage extends to damages suffered by external parties, such as customers affected by a data breach.

Cyber insurance policies may cover a range of losses and expenses, including:

• Business interruptions. Compensation for revenue losses resulting from cyberattacks that disrupt computer systems and operations.
• Threat response and remediation. Coverage for incident response, system repairs, forensic investigations, and other services required following a cyber event.
• Legal expenses. Assistance with litigation arising from cyberattacks, such as lawsuits filed by affected parties, including customers.
• Data breach recovery. Financial support for notifying customers and providing services like credit monitoring in the event of data breaches involving personally identifiable information (PII) or sensitive data.
• Regulatory action. Coverage for costs associated with regulatory investigations and compliance audits, including fines imposed on the company.
• Reputation management. Support for reputation repair efforts, such as hiring public relations firms, to mitigate damage to the company’s brand following a cyber incident.
• Ransom payments. Some cyber policies cover ransomware payments, although insurers may impose limitations or exclusions due to the rising costs of ransom demands.

However, cyber insurance policies typically come with exclusions, meaning there are certain incidents they do not cover. Common exclusions include breaches of third parties, such as vendors or partners, social engineering attacks like phishing, insider threats caused by employees, state-sponsored attacks considered acts of war, cyberattacks exploiting known vulnerabilities that the company failed to address, and network failures not stemming from cyberattacks, such as misconfigurations or internal errors.

Be careful and proactive

Like any insurance policy, it’s really important to look closely at the exclusions. There are several high-risk and frequent cyberattacks which can occur, leaving businesses without coverage or assistance. Investing in insurance should also come with an investment in proactive cyber security technologies. For example, Eftsure protects businesses from paying the wrong people, due to phishing attempts, business email compromise, and other financial scams. In many cases, companies pay the wrong people but lack the coverage or wherewithal to recover the funds.

A business owners best strategy is to remain on the defence, by reducing any risk of human error or malicious attacks.

Summary

• Cyber insurance safeguards businesses from financial losses due to cyber incidents like ransomware attacks and data breaches, covering costs such as system repairs and legal fees.
• It’s crucial in today’s digital landscape, where cyber threats are increasing, helping companies mitigate the devastating financial impacts of such attacks.
• Cyber insurance coverage includes business interruptions, threat response, legal expenses, data breach recovery, and more, but exclusions may apply for incidents like breaches of third parties and state-sponsored attacks.

References:

• www.trendmicro.com
• www.ibm.com
• www.ftc.gov
• www.investopedia.com