Why do businesses choose cybersecurity insurance?
Cybersecurity is one of the newest types of insurance, largely because it responds to a problem that did not exist 20-30 years ago. As businesses have come to rely on digital technologies to handle everything from the major to the minor they have opened themselves up to cyber threats from far and wide. Initially, these threats may have been annoying, but the consequence and frequency of attacks did not cause alarm.
That is no longer true now that cybercriminals have become very sophisticated and very motivated. The frequency of cybercrime is on the rise as well as the financial consequences. Said differently, more companies than ever are being attacked, and the damage runs deep. Cybersecurity insurance was created in response to this problem. If and when a business is hit by a cyber attack these policies cover costs related to resolving the issue and recovering from the damage. Businesses choose cyber insurance because it’s the last line of defense against one of the most common business risks.
What does cybersecurity insurance cover?
The details depend on the specifics of your policy. Like all forms of insurance, buyers can choose between basic/inexpensive plans or comprehensive/expensive plans. Some plans package many forms of coverage together while others allow insurance buyers to mix and max protections according to their needs. These are the types of coverage typically offered in cybersecurity insurance policies:
- Financial liability for exposing information that is supposed to be secure or private. Companies are liable regardless of whether the information is exposed due to accident or negligence.
- Costs associated with recovering from the incident. This might include notifying consumers, providing customers support, or offering credit monitoring to victims.
- Costs associated with removing threats from a network and getting data and applications back online. The cost of updating or replacing ruined assets may also be included.
- Costs associated with business interruption and the extra expenses needed to recover from a breach. Cyber attacks usually have a direct impact on revenue.
- Financial liability for committing libel or slander or for exposing intellectual property. Cyber risk includes both the likelihood of an attack plus the very real potential that cyber assets are simply used improperly.
- Costs related to cyber extortion. For instance, if it costs a company $5,000 to pay ransom to hackers some or all of that cost is covered.
- Costs related to regulatory non-compliance. Fines and fees for mishandling regulated financial or medical information can reach into the seven figures.
Final verdict – Is cybersecurity insurance worth it?
There is no legal requirement to carry cybersecurity insurance, and for some businesses, it may be an extraneous expense. Determining if it’s right for your business, however, requires some reflection. It’s not enough to say that you’re unlikely to be attacked or that you can’t afford to carry more insurance. The goal, rather, is to understand how much risk your business is exposed and what impact it has on your future.