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According to Cisco, 53% of small businesses and midmarket companies experienced a cyber breach. Moreover, 20% of those firms reported that breaches cost them at least $1,000,000. Ultimately, security threats (and their associated costs) are growing.
Data breach insurance is a great way to protect your business operations in the event of a cyber attack or cyber security breach. You can put cyber liability insurance claims towards overcoming an attack, restoring your systems, and many other short and long-term costs that result from a breach.
Thus, data breach insurance is a critical asset for softening the impact of cyber attacks and, in turn, easing the recovery process for your business. In this blog article, we’ll look at your data breach insurance options and provide tips on how to get the best package for your needs.
What is Cyber Data Breach Insurance?
A cyber insurance program is basically a combination of first-party liability and third-party liability coverage. Combined, the two programs are supposed to help cover the costs of responding to a cyber breach and, if necessary, compliance penalties.
First-Party Liability
In short, first-party liability insurance covers the cost of dealing with a cyber attack.
So, let’s say a data breach occurs due to a ransomware attack. In this case, insurance can support the cost of restoring access to your IT assets and end cyber extortion, reverse data loss, and bring your cyber security measures back online (e.g., firewalls, antivirus, etc).
A first-party liability program can also help your business limit the damage to its reputation. This could include public relations efforts and providing free credit monitoring to affected users.
It can also cover the cost of notifying affected parties, e.g., people whose personal identifiable information (PII) had been exposed. Insurance can also cover the cost of notifying regulators (which is required by many laws and regulations).
In effect, first-party liability is data breach insurance meant for controlling the immediate damage of a cyber attack. It’s meant for reducing the cost of damage to your business in the near-term.
Third-Party Liability
However, the effects of cyber attacks don’t stop at near-term events. In many cases — especially when it affects personal information, intellectual property, credit card numbers, etc — the effects will linger and continue harming your business through the long-term.
So, returning to the data loss example above, your clients or customers might issue a lawsuit against your business. In this case, third-party liability insurance can help cover your legal and mediation costs (e.g., settlements, fines, your lawyer fees, etc).
What Does Data Breach Insurance Cover?
In terms of first-party coverage, data breach insurance can cover your disaster recovery and business continuity costs (i.e., when you activate it during an attack). It can also cover any of your responsive network security measures during an intrusion or denial-of-service attack.
Basically, first-party data insurance covers practically anything involved with overcoming a cyber attack, including:
- network-related, data security issues;
- removing malware, spyware, or other viruses from devices;
- restoring a system following a ransomware attack;
- and a destroyed or compromised database.
Interestingly, first-party liability will also cover the costs of recovering from a disaster, such as a power surge knocking out your server, or a flood damaging your devices.
As noted earlier, third-party liability covers the cost of long-term impacts following an attack, e.g., legal troubles, regulator/government fines or penalties, etc.
However, it is essential to note that not all cyber insurance companies are willing to cover all expenses related to a cybersecurity breach. Currently, the cyber insurance industry is under fire for its strict rules that ultimately negate whether a company will receive a payout.
According to Latham & Watkins, a general policy is unlikely to cover the cost related to a company’s cyber attack. Therefore, it’s important to push for complete transparency with a cyber insurance company. You’ll also want to get support to ensure you’re fully compliant with various insurer requirements.
For example, if a cyber insurance company deems that your company has not been using strong proactive measures, they will deny your claim. This will include items such as having:
- A weak password like ‘password’ or ‘password123456’
- Not using a firewall
- Not utilizing an anti-virus software.
Your organization must prove adequate due diligence to get a fair payout.
Benefits of Having Insurance Against Data Breaches
The short and long-term costs of a cyber attack are very high. In fact, for most business owners, the costs of recovery are simply excessive. Unfortunately, cyber criminals are focusing on small businesses because they see them as easier targets.
Thus, cyber insurance is a way of softening the blow of a cyber attack by overcoming the costs, which can escalate to $1 or $2 million in some cases.
Lessen the Damage of a Cyber Attack With These Tips:
- 9 Steps to Recover from an IT Security Breach to Minimize Damage
- The 7 Most Pressing Cyber Security Threats & Vulnerabilities Facing Small Businesses
- The Top 3 Things Your Small Business Needs to Know about Cybersecurity
However, finding the best quote is only one part of the struggle. Unfortunately, insurers are also using ‘hidden’ exemptions and confusing policy terms to cut payouts (or deny them entirely!).
As a result, you’ll need to ensure that your business fully complies with your insurer’s policies in terms of IT systems, configuration, processes, and documentation.
If you fail to comply, you will not get coverage for first or third-party losses, and that will basically be a secondary disaster to your company following a cyber attack. So, when evaluating options, or before signing with an insurer, conduct an insurance compliance audit of your IT.
Get a FREE insurance compliance audit of your IT system and cut the risk of claim reductions or denials. Contact Power Consulting NYC IT support company today.
