Cyber Liability Insurance: Types of Policy Coverage

By Phoebe Fasulo

Posted on Oct 12, 2020

Organizations across all industries rely on technology to carry out their business operations. As a result, many have opened themselves up to unprecedented cybersecurity challenges, especially as data breaches become more commonplace.

A cyber liability insurance policy can help organizations fill in the gaps not covered by other security programs, helping them return to business-as-usual as quickly as possible after a breach has occurred. That said, cyber insurance policies are not one-size-fits-all, so it’s important to understand the various types of coverage available and the ways in which they can help your business recover from an attack.

What is cyber liability insurance?

Cyber liability insurance provides organizations with the help needed to prepare for, respond to, and recover from cyber threats and attacks. Essentially, cyber insurance helps to cover the financial losses that occur as a result of a data breach or similar cybersecurity event, including liability investigations or lawsuits. If your organization has access to personally identifiable information (PII), personal health information (PHI), or payment card information (PCI), then cyber liability is a necessity to ensure business continuity in the event of an attack.

What is the difference between cyber liability insurance and data breach insurance?

Cyber liability insurance and data breach insurance offer many of the same benefits, with each providing a different level of coverage to your organization. Cyber liability insurance provides comprehensive coverage for larger businesses and typically consists of both first and third-party coverages. Data breach insurance specifically refers to first-party coverages related to a data breach or attack and aims to minimize costs and damages related to informing and supporting the affected parties.

What does cyber liability insurance cover?

Cyber liability insurance is a relatively new concept in cybersecurity that has emerged in recent decades. The level of coverage required is going to vary depending on the unique needs of your organization as well as the provider from which you are purchasing the insurance.

Most cyber insurance policies will include first and third-party coverage. Take a look at the various types of coverage that may be included in each:

First-party coverage

First-party coverage helps organizations address expenses incurred as a direct result of a breach, such as cyber extortion costs. Examples of first-party liability insurance coverages include:

  • Reputation protection and repair: Covers the costs associated with repairing and upholding your organization’s reputation after an attack has occurred, including any marketing and PR efforts put in place.
  • Repairs to damaged software or hardware: Covers the cost of repairing or replacing electronic data and hardware that was damaged as a result of the breach or attack, and if necessary, can include costs for consultants to help restore the data.
  • Loss of income due to business interruption: Covers income that may have been lost as your organization works to remedy damages caused by a cyber-attack and ensure business continuity.
  • Cost of notifying impacted customers: Covers the cost of notifying all parties that may have been affected by a breach or attack, whether voluntarily or required by law. This can also include additional costs such as customer credit monitoring.

Third-party coverage

Third-party coverages help organizations defend against lawsuits and legal claims made by people or companies who were affected by a data breach. Examples of third-party liability insurance coverages include:

  • Privacy lawsuits: Cover claims against your organization that allege the breach or attack occurred as a result of your team’s failure or inability to properly secure sensitive data.
  • Regulatory fines: Covers penalty costs associated with data breach laws and compliance regulations that your organization is found to have violated, including fines and the cost of hiring an attorney.
  • Media liability: Covers against claims of defamation, libel, slander, invasion of privacy, copyright infringement, plagiarism, and other related liabilities.
  • Breach of contract or negligence claims: Covers against claims from affected parties that your organization acted out of negligence, which could be considered a breach of contract.

What is not covered by cyber liability insurance?

Cyber liability insurance should be used in conjunction with other types of business insurance, as not all types of risk are covered by these policies. Coverages that are not typically included in cyber liability insurance policies include:

  • Property loss: This is typically covered by commercial property insurance, and refers to instances in which physical property is lost or stolen as a result of the breach or attack.
  • Employee education and training: Employees can create additional vulnerabilities within a network whether intentional or not, however, employee cybersecurity training and awareness efforts are not typically covered by cyber liability insurance policies.
  • Loss of value due to theft of intellectual property: Losing critical, confidential intellectual property (IP) can be damaging to an organization both immediately and in the long term, but organizations will typically need to invest in intellectual property insurance in order to successfully protect their IP.

Factors that affect the cost of cyber liability insurance

There are a number of underwriting factors that insurance providers take into consideration when determining your organization’s risk, some of which include:

  • Type of industry
  • Claims history
  • Access to relevant data
  • Security programs in place

How SecurityScorecard can help

While cyber liability insurance can be a useful and necessary resource for organizations that have experienced a data breach or other cyber incident, it is not a catch-all solution and the effects of the breach are likely to remain for months, or even years, after the event has occurred. Instead, organizations should focus on the proactive, continuous management of cyber risks within their IT ecosystem.

SecurityScorecard provides a comprehensive view into a network so your organization can ensure that its entire supply chain is compliant with applicable regulations and actively working to protect critical information. IT teams can also use Security Ratings, which are letter-grade assessments of an organization’s cyberhealth that enable IT teams to drill down and remediate specific issues immediately, rather than waiting for them to become greater threats to security. Additionally, when your organization is able to clearly demonstrate its cybersecurity posture to insurance providers, they can more accurately assess the network and help avoid unnecessary costs or coverage that don’t apply to your organization’s needs.

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