What Is Cyber Liability Insurance & Why Is It Important?

Cybersecurity has become a major concern for businesses of all sizes and industries. With the increasing reliance on technology and digital platforms, cyber attacks have become more frequent and sophisticated. As a result, businesses are vulnerable to data breaches, network intrusions, and other cyber threats that can cause significant financial losses and reputational damage.

One way that businesses can protect themselves from these risks is by purchasing cyber liability insurance. 

What is Cyber Liability Insurance?

Cyber liability insurance is a type of insurance that specifically addresses the risks associated with cyber threats to businesses and organizations. It provides coverage for losses arising from data breaches, cyber-attacks, and other forms of cybercrime. Cyber insurance policies are designed to protect companies against financial losses resulting from these incidents by covering expenses such as legal fees, business interruption costs, and damage to reputation.

The need for cyber liability insurance has become increasingly apparent in recent years as the frequency and severity of cyber-attacks have grown. According to a report by Hiscox Insurance, 61% of small businesses experienced a cyber attack in 2019 alone. These attacks can result in significant financial damages for businesses, including lost revenue, legal fees, and reputational harm. In many cases, the cost of recovering from a cyber attack can be so high that it can put smaller companies out of business entirely.

Cyber insurance works by providing coverage for specific types of losses resulting from cyber incidents. For instance, some policies may cover expenses related to restoring lost data or repairing damaged computer systems. Others may provide coverage for expenses incurred while investigating the cause of an incident or responding to customer inquiries about privacy breach notifications. The specifics of each policy will vary depending on the insurer and the needs of the insured company. 

Cyber liability insurance is an essential tool for businesses looking to protect themselves against financial losses resulting from data breaches and other forms of cybercrime. As technology continues to advance at an unprecedented rate, companies must remain vigilant against emerging threats in order to safeguard their valuable assets and maintain their competitive edge in today's digital landscape. By investing in comprehensive cybersecurity measures such as cyber liability insurance policies, businesses can mitigate risk while remaining focused on their core operations without fear or anxiety over potential data loss or theft incidents occurring unexpectedly affecting future outcomes negatively.

Who Needs Cyber Liability Insurance?

Businesses of all sizes and industries must evaluate their exposure to cyber risks and ensure adequate protection against potential financial losses. Cyber liability insurance has become a crucial component of a comprehensive risk management plan for any business that uses digital technology to store, access, or transfer sensitive information. This insurance provides coverage for costs related to data breaches, network security failures, cyber extortion, and other cyber-attacks.

Small businesses, lacking resources and expertise in managing digital risks, are particularly vulnerable to cyber threats. However, larger companies with valuable data assets are also targeted by sophisticated hackers. Even non-profit organizations collecting personal information online face risks. Therefore, any business relying on computers or electronic devices should consider purchasing cyber liability insurance.

Successful cyber-attacks can have devastating consequences, regardless of a company's size or industry. Costs associated with data system restoration, customer notifications, credit monitoring services, and legal defense fees can quickly escalate into millions of dollars. Additionally, reputational damage resulting from a data breach can harm an organization's brand image and customer trust for years. Adequate coverage under a reputable cyber liability insurance policy helps mitigate these risks and protect businesses from potential financial ruin.

What Does Cyber Liability Insurance Cover?

The coverage provided by a cyber liability policy can vary depending on the specific terms and conditions of the policy. A typical plan covers: 

1. Data Breaches: Cyber liability insurance can help cover the costs associated with a data breach, such as the cost of notifying customers, providing credit monitoring services, and defending against lawsuits.
2. Cyber Extortion: This policy can help cover the costs associated with cyber extortion, such as the cost of paying a ransom or negotiating with cybercriminals.
3. Business Interruption: This insurance can help cover the costs associated with business interruption caused by a cyber attack, such as lost revenue and extra expenses incurred as a result of the attack.
4. Reputational Damage: Cyber liability insurance can help cover the costs associated with reputational damage caused by a cyber attack, such as the cost of public relations and advertising campaigns to repair the business's reputation.

What is Not Covered by Cyber Insurance?

It is crucial for businesses to carefully review the terms and conditions of their cyber insurance policies to understand what is covered and what is not. They should also collaborate closely with their insurance providers to ensure they have adequate coverage based on their specific risk profile and industry sector. The following are often not covered by cyber insurance:

1. Acts committed intentionally or with fraudulent intent: Some policies exclude coverage for intentional acts or those carried out with fraudulent intent. This means that if a company willingly engages in illegal activities or intentionally causes a cyber incident, they may not be covered under the policy.
2. Damage resulting from preventable viruses or malware: Basic security measures like installing antivirus software and updating operating systems are expected preventive measures. Therefore, damage resulting from viruses or malware that could have been prevented through these measures may be excluded from coverage.
3. Losses arising from insider threats: Cyber insurance policies may not cover losses caused by employees who steal sensitive data or intentionally disrupt systems from within the organization. Insider threats are considered internal risks that may be addressed through other means, such as employee training and internal controls.

Cyber Liability VS. Data Breach Insurance

Understanding the nuances between different insurance policies can help businesses make informed decisions when it comes to managing their cybersecurity risks. Two types of insurance policies that are commonly discussed in the context of cybersecurity are cyber liability insurance and data breach insurance. While these two terms may sound interchangeable, they actually refer to distinct types of coverage.

The main difference between cyber liability and data breach insurance is the scope of coverage. Cyber liability insurance covers a broader range of risks associated with online activities, including not only data breaches but also other forms of cybercrime such as hacking, phishing scams, and malware attacks. This type of policy typically provides coverage for both first-party losses (such as damage to your own computer systems) and third-party losses (such as lawsuits filed by customers or business partners who have been affected by a cyber-attack).

Data breach insurance, on the other hand, focuses specifically on covering the costs associated with a data breach event. This may include expenses related to notifying affected individuals, providing credit monitoring services, hiring forensic investigators to determine the cause of the breach, and defending against potential legal claims resulting from the incident. Data breach insurance does not typically cover losses resulting from cyber attacks that do not involve a data breach.

Ultimately, whether a business should invest in cyber liability or data breach insurance will depend on their individual risk profile and needs. Businesses that engage in high-risk activities such as e-commerce or handle large amounts of sensitive customer information may benefit from broader coverage offered by cyber liability insurance. However, companies that primarily want protection against potential data breaches may find that a more targeted policy such as data breach insurance is sufficient for their needs.

Choosing a Cyber Insurance Policy for Your Business?

Selecting an appropriate policy to safeguard against potential cyber risks is a crucial decision for businesses. The first step in choosing the right cyber insurance policy is to assess your business's specific needs and exposure to cyber risks. This includes evaluating the types of data you store, the number of employees who have access to sensitive information, and any regulatory requirements that apply. 

Once you have a clear understanding of your business's unique cyber risk profile, it's time to compare policies from different insurers. When evaluating policies, it's important to consider not only the scope of coverage but also the terms and conditions of each policy. For instance, some policies may include exclusions or limitations that could leave your business vulnerable in certain situations. Another important factor to consider when selecting a policy is the insurer's reputation for customer service and claims handling. In the event of a cyber incident, prompt and efficient resolution is critical. Look for an insurer with a proven track record of working closely with clients throughout the claims process. Choosing a policy requires careful consideration and evaluation of your business's specific needs and exposures.

By taking these steps and partnering with a reputable insurer, like BIS Benefits, that offers comprehensive coverage and outstanding customer service, you can help protect your business from potentially devastating financial losses resulting from cyber incidents.