Cyber Liability Insurance

Embroker helps you get cyber liability insurance to cover both first and third-party financial losses resulting from data breaches and other cybercrimes that may compromise sensitive company and customer information.

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What Is Cyber Insurance?

A cyber insurance policy, also referred to as “cyber risk insurance” or “cyber liability insurance” coverage, is a financial product that enables businesses to transfer the costs involved with recovery from a cyber-related security breach or similar events.

In many cases, the policy can also provide access to a panel of top-tier breach coaches and other service providers.

Who Is Cyber Insurance Coverage For?

We strongly encourage all our clients to consider the value of cyber insurance, especially if they handle or use digital information.

One of the first topics we cover with many new cyber insurance buyers is the business’s regulatory or contractual responsibility with regards to customers’ personal information. If your business stores customers data such as names, addresses, credit card information, Social Security numbers, and more, on any type of computer system on or offline, then there is a regulatory obligation to keep that data secure, and therefore, a higher price tag in the event of a breach.

Many are surprised to learn the real costs associated with a breach. According to a Ponemon report from 2017, cyberattacks cost small and medium-sized businesses an average of $2.235 million. On top of that, the study showed that 60 percent of the businesses that were polled said that attacks are becoming more severe and more sophisticated each year.

Additionally, if your business’s revenue stream has any contact with European consumers or businesses, then the recently implemented General Data Protection Regulation (GDPR) likely applies to you. Many US-based businesses have already taken measures to be GDPR compliant but that doesn’t mean your insurance has followed suit.

Why Do You Need It?

Unsurprisingly, cyber insurance emerged onto the insurance scene recently as a result of the fact that other traditional business insurance policies were simply not created to cover the types of risks most commonly associated with cyber insurance.

Therefore, many insurance experts will argue that cyber insurance policies are still in their infancy and a lot of work needs to be done when it comes to standardizing coverage and making sure that insurance carriers are able to support the needs of modern businesses. Not only that, education is important in order for businesses to understand the threat of cyber attacks and the seriousness of these types of threats.

A very recent report from insurers Hiscox claims that seven out of 10 firms do not have a quality cyber security strategy in place.

There is, however, no doubt that the cyber insurance space will continue to grow rapidly and offers will certainly be expanded and customized. Also, as is the case with most other types of insurance offers, cyber insurance policies are evolving towards more industry-specific solutions and becoming less general.

What Does Cyber Insurance Cover?

Cyber insurance is as dynamic as the companies it protects and is consequently far from standardized. However, some of the issues that cyber liability insurance typically covers include:

  • Data loss, recovery, and recreation
  • Business interruption/ loss of revenue due to a breach
  • Loss of transferred funds
  • Computer fraud
  • Cyber extortion

Important Note: Errors and omissions insurance is not cyber insurance and cannot serve as a substitute for proper cyber insurance, even if the E&O policy has a technology error rider.

If hackers expose or steal personal information, such as Social Security numbers, driver’s’ license number (in some states), address, and bank account information, a cyber liability insurance policy pays for:

  • Notification Costs: This expense is significant because the company bears the burden of both identifying potential victims, which requires an internal investigation, and providing notification that’s reasonably calculated to give actual notice.
  • Credit Monitoring: In effect, your cyber insurance policy pays for victims’ insurance policies. Regulators usually dictate the kind of credit monitoring to provide and it’s a safe bet they will not be satisfied with the cheapest available protection.
  • Civil Damages: Most of these liability lawsuits are class actions, with hundreds of thousands of dollars in damages at a minimum, even for a very small company.
  • Computer Forensics: This covers costs to hire computer forensics consultants working under the direction of your attorneys to determine whether a data breach occurred, to contain and prevent further damage, and to investigate the cause and scope of the breach.

Cyber insurance companies also have a duty to defend policyholders from related administrative actions or liability lawsuits. Additionally, most policies also provide resources that help policyholders design cost-effective and robust security and data encryption protocol. To further minimize liability risk, consider addressing BYOD (bring your own device) procedures.

What’s Not Covered?

Like most coverages, there are certain exclusions that a cyber policy usually will not cover.

The policy will not respond if you are sued for any potential vulnerabilities in your systems before a breach occurs.

Most notably, cyber insurance policies will typically not reimburse you for future profits lost due to a cyber-attack or data breach.

If you fear losses due to theft of your intellectual property, you’ll have to look towards a specifically tailored intellectual property insurance policy. Additionally, allegations that the policy holder’s patents infringe upon those of a third party will also not be afforded coverage.

If an agent of a foreign power causes the breach, the coverage can be denied under the acts of war exclusion.

Also, the cost to improve your security and technology systems after an attack will not be included in most policies.

What Does Cyber Insurance Cost?

It’s best to shop for this type of insurance by coverage as opposed to cost. Your company’s sophistication and ability to avoid an incident and coverage limit are the two biggest factors in determining premium costs, as well as revenue and number of unique PII or PHI records stored or maintained on the insured’s systems. You can read more in our full guide on cyber insurance costs.

The good news for those seeking cyber coverage is that the insurance market is a buyers’ market in 2019. There are several dozens of insurers that are competing for your business.

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Rob Kenny

Icebreaker Health

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