In an increasingly digital world, a single click can send your business spiraling into chaos. Cyberattacks are no longer the stuff of sci-fi movies; they've become all too real and terrifyingly frequent.
Texas businesses reported a dramatic increase in cybercrime incidences in 2021 alone, resulting in billions of dollars in losses. Consequently, one would wonder if their business is secure enough.
This article looks into Cyber Liability Insurance, explaining why it is an essential precaution for any modern organization traversing the complex network of the internet. Find out how you can fortify your company's virtual walls and protect its survival.
Understanding Cyber Liability Insurance
As technology continues to evolve at an incredible pace, so do the challenges and risks faced by businesses. One such risk is cybercrime, which has become increasingly prevalent in recent years, causing significant financial losses and reputational damage. Cyber liability insurance is a type of policy that helps businesses protect against such risks.
Simply put, cyber liability insurance is designed to help businesses recover from financial losses related to cyberattacks or data breaches. This type of insurance can provide coverage for several types of costs that a business may face when dealing with a cyberattack.
For instance, if a business's computer network gets breached and client data is stolen or compromised, they may have to pay for legal fees, notification, credit monitoring expenses for their customers, and other associated costs. Cyber liability insurance can help alleviate the financial burden by providing coverage for these expenses.
Additionally, failing to protect a client's confidential information could result in legal action. Suppose the lawsuit ends in favor of the clients; in that case, the damages awarded to them can be substantial. Hence, cyber liability insurance covers legal defense costs as well as settlement damages.
Some small business owners believe that cyber liability insurance does not apply to them because they feel their business is too small or lacks sensitive data needed by hackers. However, this assumption couldn’t be further from the truth; no company is immune from cyber risks and attacks. Even if your business has nothing perceived as valuable to a hacker on its database, like social security numbers or medical records, hacking can still cause significant damage to your business's system.
Think of a small lock on a door: it might not keep out an experienced thief looking for specific valuable goods; however, it would likely deter opportunistic thieves looking for an easy target. Similarly, having a basic cybersecurity plan in place, including cyber liability insurance, could make your business less of an easy target.
With that understanding of cyber liability insurance, let's take a closer look at the essential components of the policy.
Key Components of the Policy
Typically, cyber liability insurance policies include both first-party and third-party coverage. First-party coverage deals with costs incurred by the insurer following a hacking or data breach incident. Conversely, third-party coverage offers protection against potential suits by clients whose information is compromised during a data breach. Here are some of the key components of most cyber liability insurance policies:
1. Data Loss
This provision covers the expenses incurred when recovering lost data or restoring security programs after a security incident. Data includes any kind of digital record in your business: employee ID information, client or customer data, financials, proprietary information, etc.
2. Theft and Fraud Protection:
In case your company’s customers' or clients' sensitive information (such as bank account details) is stolen during a hacking incident and used fraudulently. The policy will cover costs related to customer reimbursement, customer claims processing fee(s), public relations crisis management costs, which include managing damage to your reputation, as well as litigation fees if necessary.
3. Business interruption:
If your business operations have suffered from data breaches or other security-related issues causing downtime, this part of the policy helps to cover losses due to disruptions in regular business activities.
4. Notification cost:
You are obligated under law to inform potentially affected customers or clients of their breaches promptly. The notification fee is part of what cyber liability insurance covers, as it would offset those notification and post-event monitoring costs for any affected parties.
5. Investigation costs:
If they arise from an actual or potential threat, the policy also covers the costs of preventative measures taken to look into and resolve potential threats before they occur.
For example, suppose a client's personal information is stolen during a cyberattack. In that case, the policy covers the cost of measures taken to mitigate the risk of identity theft and help protect the client's information going forward.
Cyber liability insurance is not only designed to cover financial damages but also reduces future risks, which helps prevent lawsuits (third-party Coverage).
Exclusions and Limitations
When it comes to cyber liability insurance policies, businesses need to understand that there are exclusions and limitations to coverage. As with any type of insurance policy, the fine print matters, and it's crucial to know what is covered and what is not. Here are some common exclusions and limitations that may be present in a cyber liability insurance policy:
Preventable Security Issues: If your business failed to take reasonable measures to prevent a cyberattack, then the insurer may deny coverage. This means that if you didn't have up-to-date antivirus software or failed to implement multi-factor authentication, you may not be able to claim on your policy.
Prior Incidents: In most cases, a cyber liability insurance policy won't pay for damage resulting from a prior incident that happened before the coverage began. For example, if you experienced a data breach six months before buying the policy, you'd be responsible for covering those losses yourself.
Acts Initiated and Caused by the Insured: If your business knowingly initiated or caused a cyber attack—perhaps as part of an attempt at corporate espionage—then coverage may be denied.
Infrastructure Failures Not Caused by Cyber Attacks: Some infrastructure failures, like power outages or natural disasters that compromise cyber security, may not be covered under most policies unless specifically added as an endorsement.
With these exclusions and limitations in mind, business owners must carefully examine a potential policy’s terms and conditions before they sign on the dotted line.
Business Relevance of Cyber Liability Insurance
As we head further into the digital age, businesses of all sizes increasingly rely on computers, the internet, and web-enabled devices. However, as we've discussed earlier in this article, such interconnectedness inevitably leads to concerns about privacy breaches, data theft, and network intrusions. But why is this relevant to a business owner? Here are some reasons why cyber liability insurance should be essential for all businesses:
Financial Impact of Cyber Attacks: Cyberattacks can have a devastating effect on organizations, particularly small businesses that lack the resources to weather a significant financial hit. In fact, according to the 2021 Hiscox Small Business Cyber Risk Report, 1 in 6 businesses said an attack threatened their survival. The costs of recovery can include lost productivity, fines from credit card companies, stolen funds, and expenses related to repairing computer systems.
Reputation Management Post Cyber Breach: A good reputation is hard to build but easy to lose due to grave cyber breaches that could lead to brand damage or business shutdown due to loss of public confidence or regulatory action. Breaches can prompt negative publicity via news articles or social media buzz, harming your reputation with current and future clients alike.
Recovering from these losses is expensive and time-consuming, but cyber liability insurance can provide both coverage and assistance with restoring customer confidence.
Being Prepared for Cybersecurity Incidents: Given that cyberattacks are becoming increasingly common and sophisticated each year, it makes sense for businesses to plan. By having a robust cybersecurity policy in place, underpinned by suitable insurance coverage, businesses can prepare themselves for the worst-case scenario while stopping potential attacks before they take place.
Acquiring Cyber Liability Insurance
Acquiring cyber liability insurance is a simple process. Business owners can purchase the policy directly from an insurance carrier or through an independent insurance agency.
Steps to Securing the Right Policy
Securing the right cyber liability policy involves several steps that business owners should follow:
Step One: Identify Risks
The first step requires businesses to recognize their IT strengths and weaknesses, such as the types of data they collect, store, and transmit; the types of clients served; employee education and training programs; security protocols; an incident response plan; and recovery procedures.
For instance, healthcare organizations need more extensive coverage than retail outlets because they gather sensitive medical data, such as patient records, while others handle credit card transactions.
Step Two: Evaluate Coverage Options
Once businesses understand the risks, the second step is to evaluate the different coverage options. Businesses should opt for a policy that adequately covers their exposure to cyber liabilities, including third-party liability, first-party expenses, regulatory fines and penalties, business interruption losses, crisis management costs, and more.
Adequate cyber liability coverage should also consider privacy breaches leading to identity theft, data exfiltration, internal frauds by employees or contractors, cloud-based data storage services, social engineering attacks like ransomware and phishing scams, loss of digital business assets, and intellectual property infringement claims, among others.
Step Three: Compare Quotes and Choose the Right Insurance Carrier
It's essential to compare quotes from different insurers when choosing the right insurance carrier. Business owners should consider various factors like the cost of premiums, coverage limits, deductible amounts, exclusions, and endorsements included in policies before deciding what's suitable for their organization.
Step Four: Implement Robust Cybersecurity Measures
Implementing robust cybersecurity measures can help businesses prevent data breaches and decrease the likelihood of future cyber incidents. These measures involve employee education and awareness programs about phishing scams and password hygiene; the use of multi-factor authentication tools; regular security patching; penetration testing tools to identify vulnerabilities in your infrastructure; and implementing access controls.
It is possible to draw an analogy by pointing out that, regardless of whether a driver has car insurance or not, they must adhere to road safety regulations like those that forbid texting while driving or set speed limits.
Cyber Liability Insurance in Texas
Thumann Agency is your dependable partner for all of your personal and commercial insurance requirements in Dallas, TX. With over 22 years of experience, we have been offering great coverage at moderate pricing to the Dallas-Fort Worth community and around Texas.
As a family-owned Independent Insurance Broker, we have the advantage of representing over 80 of the nation's largest insurance carriers. This allows us to provide you with a wide range of options and locate the optimal pricing, coverage, and service combination tailored to your unique needs. From personal insurance to company insurance, including Cyber Liability Insurance, we provide the solutions you need to safeguard what matters most.
Obtaining a quote from us is simple and quick. We provide same-day pricing quotations thanks to our innovative technology, making insurance purchasing convenient and hassle-free.