Cyber Liabiltiy Insurance

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What is cyber liability insurance?

Cyber Liability Insurance Policy

Cyber Liability Insurance

Cyber liability insurance is designed to help protect small businesses from the financial consequences of a malicious data breach or software attack. A cyber liability policy covers a businesses expenses that result from cyber attacks such as customer notification, credit monitoring, legal fees, and fines.

Do businesses need cyber liability insurance?

Cyberattacks are on the rise and data breaches are expensive and extremely disruptive. Frequently, small businesses often have a weak cybersecurity firewall, making them an attractive and lucrative target.

Small business owners need to take cyberattacks seriously. An attach isn’t just a mere inconvenience, a data breach can put you out of business. In fact, according to Inc. Magazine, 60% of small businesses who suffer a cyberattack close shop within 6-months of the attack.

A cyber liability policy helps by providing coverage for your business to recover from the often severe financial losses caused by cyberattacks and data breaches. It can pay for credit monitoring, attorney’s fees, fines, and other costly expenses.

Does your company handle sensitive information?

Hackers and online thugs typically target retailers, healthcare operations, and financial services providers because they handle credit card data, work in an e-commerce, or operate in a cloud-based cyber environment.

But any business who handles personal, credit card, or financial data on their clients or customers is a potential victim.

Who Needs Cyber Liability Insurance

The typical policy holder handles:

  • Credit card, banking or investment account information
  • Client or customer medical history data
  • Personal identification data like social security or driver license numbers
  • Customer names, email addresses, phone numbers, and home addresses

What does cyber liability coverage help pay for?

If you think cyberattacks are expensive, think again, they are very expensive. In fact, an IBM study puts the average cost of a data breach at $3.86 million. They also take a long time to resolve, with the same study concluding that it takes up to 280 days to identify and resolve a data breach. Sure, larger companies will cost more to resolve, but these attacks are all relative and regardless of the amount, it’s going to be expensive and time consuming for your business.

Cyber insurance coverage helps provide:

  • Mandatory notification: you will be compelled to notify the affected parties (your customers). In fact, failure to do so could result in steep penalties and fines by regulators.
  • Investigation, discovery and repair: This includes evaluating the attack to determine the security flaw and fixing the issue.
  • Credit monitoring services: Your affected customers will be entitled to credit monitoring services after the breach. Cyber liability can provide several years of credit monitoring services for those impacted.
  • Loss of business opportunities: For some the damage can be to reputation, your business may need to hire a public relations firm to help manage the fallout. This can be covered by a cyber liability policy.

What are the types of cyber liability insurance?

Cyber liability insurance is offered in two forms and each is designed to help provide coverage for different affected areas of your business. Below are a quick summary of the two types of cyber liability protection:

  • First-party coverage: this type of cyber coverage helps pay for expenses when your IT systems, network, or data storage are breached. It’s also for stolen data.
  • Third-party coverage: This form of cyber coverage helps provide protection when a client or customer sues your company for it’s failure to adequately protect customer data.

First-party cyber liability insurance: for risks at your company

First-party coverage is for your business. I helps provide protection against the expenses that directly impact your business after an attack. It will also help to cover expenses when your network or database is hacked or your data is breached. Additionally, first party coverage can help pay for the costs of mandatory customer notification and credit monitoring services.

For smaller businesses with little exposure this type of coverage can sometimes be added by endorsement to a general liability insurance policy. However, for retailers and other professionals who collect customer credit card information it is highly recommended they purchase a dedicated standalone policy.

The following are some of the things the first-party cyber liability covers:

  • Cyber extortion payments
  • Hiring an expert to investigate the breach and assist with regulatory compliance
  • Notifying affected customers
  • Customer credit and fraud monitoring services
  • Crisis management and public relations
  • Business interruption expenses, such as the cost of hiring additional staff, renting equipment, or purchasing third-party services

What does third-party cyber liability cover?

When you suffer a cyberattack, you are exposed to your customers suing you for their damages. Third-party coverage is designed to protect you from these forms of lawsuits. It provides liability coverage if a client blames you for failing to prevent a data breach or cyberattack. This could include the cost of legal defense and settlements.

If your business is cybersecurity, this form of cyber liability is highly recommended. It can help provide protection if the software or hardware your company recommends is determined to be responsible for a client’s data breach.

Below are some of the things third-party cyber liability insurance can cover:

  • Legal defense costs
  • Settlements if you and the client settle out of court
  • Judgments you’re legally obligated to pay after a data breach
  • Other court costs

If you’re an IT, software, or cybersecurity professional, third-party cyber liability insurance can sometimes be bundled with your errors and omissions policy sometimes referred to as a technology errors and omissions insurance, or tech E&O.

How much does a cyber liability policy cost?

How Much Does Cyber Liability Insurance Cost

Cyber liability insurance can be an affordable insurance coverage for a small business. Like other forms of business insurance, it depends on the amount of coverage you purchase and your class of operation. Here are some of the factors that affect cyber liability premiums:

  • Volume of sensitive data your business collects
  • The industry segment of your business
  • The coverage limits you require
  • Number of employees

How do cyber attacks happen?

Verizon conducted an investigation in 2021 of data breaches, and their report discovered that 28% of data breaches involved small businesses. How are those breaches happening? According to the report, the primary causes were:

  • Outsiders to the business cause 70% of data breaches
  • Financial motivation was behind 86% of attacks
  • Web applications were the source of 43% of breaches
  • Ransomware were 27% of malware incidents

Here is some food for thought. With nearly a third of data breaches in 2020 involved small businesses, only about half  of small businesses have any form of cybersecurity defense plan. Despite cyberattacks being on the rise, only 16% of small businesses think they are at risk.

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