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Cyber Insurance: Key to Minimizing the Risk

cyber insurance
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How often do you get clickbait emails or ones that promise you loads of money for a simple task?

A single click on any of those links, and there you are, a victim of phishing, malware, or a virus attack that can take all your information away in a jiffy.

And just like us individuals, major companies like Amazon, Sony Pictures, Volkswagen, etc. have fallen victim to these attacks in the past, resulting in huge loss of data and revenue for the company.

For this simple yet major reason, cyber insurance becomes an integral part of the risk management plan of any company to avoid any digital attacks that may come their way.

If you’re fond of the saying “better safe than sorry”, you’d want to keep reading further to implement cyber insurance into your business.

Introduction to Cyber Insurance

To put it simply, just like we have health insurance that takes care of us monetarily when we are ill and covers different ailments, in the same way, cyber insurance takes care of our company from different kinds of cyber attacks.

Technically, it’s a liability contract between the insurance provider and the entity that purchases it. It helps reduce the financial risks associated with different kinds of online threats for businesses with an online presence.

Cyber insurance is still a newly-introduced scheme, but the companies purchasing them are said to be early adopters of a new era where unpredictable and never seen before cyber attacks are rising.

Also read: What is Cyber Espionage and How to Prevent it

Importance of Cyber Insurance

Between 2015 and 2021, 65% of firms affected by ransomware lost about $1 million to $10 million standalone from online attacks.

ransomware

The increasing online presence of businesses has also allowed digital thefts, so it’s important to cover your company in time to minimize this risk. 

Moreover, compromise or data loss can negatively affect a business which may also incur a loss of data and revenue at the customer’s end. An example is the cyber attack on Sony Pictures back in 2011.

Their PlayStation network was breached by hackers, exposing the data of 77 million PlayStation user accounts.

Along with this, Sony had to bear a loss of $171 million in costs as they did not have cyber insurance covering digital thefts. 

Many businesses are now shifting online to streamline their internal processes, increase their digital presence and adapt to newer challenges like hybrid work environments, but this also increases the need to protect company data.

Data theft, trojan, and malware attacks can be made for ransom, stealing money, or even for terrorism. This is why many organizations are now including cyber insurance as a risk mitigation strategy.

How Does Cyber Insurance Work?

You can avail of cyber insurance services from companies that provide business-related insurance like business liability insurance, E&O insurance, and commercial insurance. 

Based on your selected plan, you’ll get exclusive coverage which includes first-party coverage (losses that directly affect your company) and third-party coverage (losses that affect people related to that particular business). 

It also covers expenses related to data recovery, client refunds, investigations, and legal assistance.

Who’d need Cyber Insurance?

Cyber-Insurance-need

This question has a simple answer – anyone and everyone who has a business and an online presence need cyber insurance.

A general perception is that hackers usually aim for big companies, as they are high-value targets for them.

However, it’s important to understand that data is the world’s biggest business, and a small-medium enterprise’s data can also create a huge impact. 

This means any business that manages electronic data, customer data, credit card numbers, and other information would need cyber insurance for the safe functioning of the unit. 

How Can Cyber Insurance Help Your Business?

There are many benefits of cyber insurance for your business, some of which are highlighted below:

  • Protects your data from unauthorized access
  • Does not allow third-party systems to access your server network
  • Provides you with legal support in case of a cyber attack
  • Includes data breach coverage
  • Helps reimburse business disruptions
  • Forensic support to retract lost data

The above benefits tell you how important cyber insurance is for your business to always function smoothly.

Also read: Best Online Security Software for Small to Medium Businesses

What Does Cyber Insurance Cover?

Most insurances cover first-party and third-party damages in their policies to help with 360-degree protection for their clients. Let’s have a quick look at most of the things that cyber insurance can cover for your business

First-Party Coverage:

  • Data recovery services
  • Documenting and investigating the source of the breach
  • Lost revenue, hardware, and software repairs
  • Credit monitoring services

Third-Party Coverage:

  • Privacy lawsuits and settlements
  • Claims of breach of contract or neglection
  • Compliance regulation fine

As cyber insurance is a fresh area, the industry is still developing, and so are the inclusions covered under them.

Some insurance companies truly understand the adverse effects on a business after a cyber attack, which is why they also include crisis communication as a part of the coverage.

It can help you connect with PR agencies that effectively communicate with your customers to rebalance your reputation.

What Cyber Insurance Does Not Cover?

Along with the inclusions, you should also know what cyber insurance does not cover. While this might differ from company to company, certain common exclusions are easy to point out.

Here are some of them:

  • Patents, Copyrights, and Software infringements
  • Physical thefts of your hardware
  • Damages due to wars and invasions
  • Loss of data due to lack of security measures to safeguard your data
  • Loss of devices
  • Third-party security breaches

Additionally, they do not cover data loss due to technical or network interruptions.

You should keep in mind that the policy compensation only includes data recovery and does not aim to improve your system or upgrade it.

Learning Resources

So far, we’ve discussed most aspects of cyber insurance you need to know. However, it’s always a good idea to keep our minds open for more knowledge, which is why I am a fan of books that give you chunks of information that’ll help you massively.

Below are some learning resources that can help you get started with an in-depth understanding of cyber insurance.

#1. Damage Control – Cyber Insurance and Compliance

Co-authored by Joseph Burnsman, Daniel Hudson, and Kenneth Reiners, Damage Control revolves around basic to advanced-level questions related to cyber insurance.

It helps with an evolved and unbiased view of different facets that revolve around businesses. Some of the questions that are answered are:

  • What is a breach?
  • What threats are affecting my business?
  • What potential state cybersecurity and breach notification laws apply to my business, and what are their mandates? 
  • What happens when the same losses are covered by multiple policies?

This book provides great information for any business owner and basically all you’ll need to know about cyber thefts, insurance, and turnarounds.

#2. The Cyber Insurance Imperative

The Cyber Insurance Imperative covers the basics of cyber insurance and helps you understand the entire ecosystem of cyber insurance.

It spells out the threat environment for a small and midsize business and what kind of losses it brings.

You can expect to be educated about how insurance responds to the aftereffects of the attack, such as losses, risk management, claims, and privacy breaches, in a simple and lucid manner.

Author’s Note

Digital thefts usually have many known and unknown implications for a business without prior notice. This is why it’s important to protect your business and customer data to avoid mishaps.

That being said, it’s equally important to read and understand fully what your cyber insurance provider brings to the table.

This post will help you understand cyber insurance better and why you need it for your business.

Next, check out these cyber security best practices that you should know about.

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