Cyber liability insurance exists as a standalone insurance product but is frequently purchased together with a broader errors & omissions liability insurance solution.
Who Needs Cyber Insurance?
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, cyber attacks 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.
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:
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.
Highly-Publicized Examples of Cyber Insurance at Work
- A GOP data firm that exposed millions of Americans’ personal information faced a class-action lawsuit for the first time, arguing that the “actual damages” exceed $5 million.
See: GOP data firm that exposed millions of Americans’ personal information is facing its first class-action lawsuit
- Ride-sharing company Uber had to pay a penalty to all 50 states after allegedly concealing a data breach in 2016 that affected roughly 57 million people.
See: Uber Settles Its Largest Lawsuit After Hiding Major Data Hack From Users
- A lawsuit filed against Facebook alleged that the company was guilty of unlawful business practices, deceit by concealment, negligence, and violations of California’s Customer Records Act as a result of a massive hack that exploited a security flaw to steal account credentials of as many as 50 million users.
See: Facebook Faces Class Action Over Security Breach That Affected 50 Million Users
- Yahoo faced lawsuits from people who feared their accounts had been hacked and claimed the company was “grossly negligent,” putting their financial and personal data at risk. The lawsuit also alleged that Yahoo did not adequately disclose the breach that exposed the private information of at least 500 million users.
See: Yahoo facing lawsuits in the wake of massive data breach
- Three years after Neiman Marcus disclosed that it had become the victim of a hack attack in 2013, exposing the credit card information of more than 350,000 customers, the retailer reached a $1.6 million settlement in the subsequent class action lawsuit.
See: Neiman Marcus Agrees To Pay $1.6M To Settle 2013 Data Breach Class Action Lawsuit
- Target Corp agreed to pay $39.4 million to resolve claims by banks and credit unions that said they lost money because of the retailer’s late 2013 data breach. This settlement resolved class-action claims by lenders seeking to hold Target responsible for their costs to reimburse fraudulent charges and issue new credit and debit cards.
See: Target in $39.4 million settlement with banks over data breach
Cyber Insurance Costs
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.
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.
Naturally, there are also things that you can do as a company to will help reduce the risk of attacks and breaches, such as making sure that your employees are receiving regular training and instructions on what they need to do to maintain security and what types of things they need to keep an eye out for – things that could tip them off to a potential attack.
For the easiest, most stress-free way to buy business insurance that is tailored to the specific needs of your business, get started by creating an Embroker account or reach out to our team of expert brokers. We’re here to help!