In today’s digital world, a company’s most valuable assets often live online. But what happens when these assets, or the systems they rely on, are targeted by a cyberattack? The financial and operational fallout can be catastrophic. This is where cyber insurance comes in. Also known as cyber-liability insurance, it protects businesses from the financial repercussions of cyberattacks and data breaches.
This guide will explain what cyber insurance is, who should have it, and what it covers—and just as importantly, what it doesn’t.
What Is Cyber Insurance?
Cyber insurance, also known as cyber-liability insurance, is a specialized type of coverage designed to protect businesses from the financial repercussions of cyberattacks and data breaches. Think of it as a financial safety net for your digital assets. While standard business insurance might cover physical damage, cyber insurance specifically helps you deal with the costs associated with digital threats, such as business interruption, data recovery, legal fees, and regulatory fines. It can help a company quickly recover from a cyber event, minimizing disruption and long-term financial damage.
Is Cybersecurity and Cyber Insurance Connected?
Yes, cybersecurity and cyber insurance are deeply connected; they are two sides of the same risk management coin. Cybersecurity is about being proactive—it’s the measures you take to prevent an attack from happening in the first place. Cyber insurance is about being reactive—it’s the plan you have in place to recover if an attack still manages to succeed.
- Risk Mitigation: Strong cybersecurity measures make your company a lower risk in the eyes of an insurer. By demonstrating that you have security protocols in place, you are more likely to get a favorable offer on a policy.
- A Prerequisite for Coverage: Insurers will not sell a policy to a company that seems to be a high-risk target. To get a good policy, your business must first prove it is responsible by having a strong cybersecurity posture.
- A Shared Responsibility: Getting a policy is not a replacement for good security. Instead, it’s a partnership where both you and the insurer work together to manage and mitigate digital risk.
- The company’s size and yearly income.
- The industry in which the company operates.
- The type of sensitive data it handles (e.g., medical records, financial data).
- The company’s existing cybersecurity posture.
What Are the Benefits of Cyber Insurance?
Even with the best cybersecurity in place, a determined attacker can still succeed. This is where the benefits of cyber insurance become apparent.
- Financial Protection: The most obvious benefit is financial. Cyber insurance can cover a wide range of costs that would otherwise be catastrophic for a business, from paying a ransom to covering the legal fees of a class-action lawsuit.
- Access to Experts: Many policies come with access to specialized incident response teams. These experts can help you manage the crisis, contain the breach, and restore your systems, all of which are critical to a quick recovery.
- Business Continuity: By covering the costs of business interruption and data recovery, a policy ensures that your company can get back on its feet faster. This minimizes downtime and protects your brand’s reputation with customers.
- Regulatory Compliance: In the event of a data breach, a cyber insurance policy can help you meet regulatory requirements and cover potential fines, which can be significant depending on your industry and jurisdiction.
Who Needs Cyber Insurance?
The simple answer is that almost every business needs cyber insurance. Any company with an online presence, that handles digital data, or that relies on technology to execute its daily operations, can benefit from a policy. The risk of a cyberattack is no longer limited to large corporations; small and medium-sized businesses are often seen as easier targets. Cyber insurance can help reduce business disruption during and after an attack and can be the difference between a swift recovery and a complete business shutdown.
Common Causes of Cyber Insurance Claims
A wide variety of incidents can lead to a cyber insurance claim, as cybercriminals are always evolving their tactics. Some of the most common causes for claims today include:
- Ransomware: This type of attack involves a malicious program that locks a company’s files or systems until a ransom is paid.
- Phishing Scams: These attacks, often in the form of business email compromise (BEC), trick employees into revealing sensitive information or transferring funds to fraudulent accounts.
- Fund-Transfer Fraud: This is a specific and growing threat where criminals manipulate a company’s systems to illegally transfer funds, often from a compromised bank account.
What Does Cyber Insurance Cover?
While policies can differ between providers, cyber insurance is designed to cover the immediate financial costs of becoming a victim of a cyberattack. A comprehensive policy is likely to cover expenses such as:
- The cost of investigating the cyber incident.
- Ransom payments to recover encrypted data and systems.
- Business interruption and recovery costs.
- Data recovery and system restoration expenses.
- Legal fees and regulatory fines resulting from the breach.
- The cost of notifying customers whose data may have been compromised.
What Isn’t Covered by Cyber Insurance?
It’s crucial to understand the limitations of a cyber insurance policy so you can protect your assets accordingly. Cyber insurance typically does not cover the financial expenses of losing intellectual property (IP), nor does it cover the long-term reputational damages that can follow a major cyber event.
Furthermore, some policies have specific exclusions. For example, following the major WannaCry and NotPetya cyberattacks in 2017, some insurers denied claims. Because the NotPetya malware was linked to the Russian military, it was classified as an “act of war,” a common exclusion in many insurance contracts. This remains a potential issue today as the lines between state-sponsored cyber warfare and criminal hacking blur.
How Much Does Cyber Insurance Cost?
The price of cyber insurance is not one-size-fits-all. It is determined by a variety of factors, including:
The Requirements for a Policy
To get a favorable offer on coverage, your company will almost certainly have to demonstrate that it is already responsible with its cybersecurity. Insurers will be hesitant to take on a client who appears to be on the verge of a data breach. When applying for a policy, you will be expected to have certain cybersecurity procedures in place, such as firewalls, employee training, and multi-factor authentication.
Moreover, a policy isn’t a “set it and forget it” solution. In many cases, policies are reassessed every 12 months, and businesses must maintain proper cybersecurity protocols or risk losing coverage, even after it has been issued.
The Future of Cyber Insurance
As the frequency and sophistication of cyberattacks rise, the cyber insurance market will undoubtedly evolve. However, one trend is likely to remain: insurers are unlikely to provide policies to companies that do not take cybersecurity seriously. The future of cyber insurance will be defined by a partnership between businesses and their insurers, where both parties must actively work to manage and mitigate risk.
Applicable Steps Towards Cyber Insurance
Cyber insurance is not a product you can simply buy off the shelf. Here are the actionable steps you need to take to get the right policy for your business.
- Evaluate Your Risk: Understand your company’s vulnerabilities. What kind of sensitive data do you handle? Where are your biggest weak points? Conduct a risk assessment to understand what you need to protect.
- Strengthen Your Cybersecurity: Before you even talk to an insurer, ensure your security is in a good place. Implement multi-factor authentication, train your employees, and use firewalls and antivirus software. Insurers will want to see that you are a low-risk client.
- Talk to a Specialist: Find an insurance broker who specializes in cyber insurance. They can help you navigate the complex market and find a policy that fits your specific needs and budget.
- Review Policy Exclusions: When you get a quote, look closely at what isn’t covered. Does the policy exclude “acts of war”? Does it cover intellectual property loss? Make sure the policy aligns with your company’s most significant risks.
- Maintain Your Security: Remember that your policy will likely be reassessed annually. You need to continuously maintain and improve your cybersecurity posture to ensure you remain compliant with the policy’s terms and retain coverage.
Frequently Asked Questions
What’s the difference between cyber insurance and regular business insurance?
Regular business insurance (like general liability) typically does not cover financial losses from digital threats. Cyber insurance is a specialized policy that specifically covers the costs and liabilities associated with cyberattacks and data breaches.
What should I do immediately after a cyberattack?
First, disconnect affected systems from the internet to prevent further damage. Then, contact your cybersecurity team and your cyber insurance provider to begin the incident response process and file a claim.
Is cyber insurance the only protection I need?
No. Cyber insurance is a financial safety net, not a replacement for strong cybersecurity measures. It should be part of a comprehensive risk management strategy that includes robust security protocols, employee training, and an incident response plan.