Often it’s not a question of if your business will experience a data breach, but when. Hackers are always looking for new ways to take advantage of weak networks or trick employees into falling prey to their schemes. And if your business operates computer systems or handles sensitive data regularly, you are at risk.
Having the right insurance coverage to provide aid in the event of a cyber attack can save your business from expensive lawsuits and reputational damage. But choosing the right insurance coverage can be difficult. Insurance carriers typically offer two types of cyber insurance: first-party and third-party. Both insurance policies offer different kinds and levels of coverage — so which coverage is right for you?
In this post, we will explore the importance of cyber insurance, the difference between first-party and third-party insurance, and how to choose the right insurance policy. Let’s take a closer look.
Why do companies need cyber insurance?
Protecting your business with a strong cyber insurance policy can save time, money, reputational damage, and more. Here are three reasons why your company needs cyber insurance:
Data breaches are expensive
The cost of a cybersecurity breach can be anywhere from a few hundred to millions of dollars. According to a recent study conducted by IBM, the average total cost of a data breach is $4.24 million dollars, the highest ever recorded. Costs are predicted to rise even more as remote work continues on into the future. Managing the impact or possibility of a cyber breach will save your business-extensive amounts of money.
All industries are at risk for cyberattacks
It doesn’t matter if you are a small or large business, cybercriminals will find a reason to infiltrate your company’s network. In fact, 49% of the time, businesses with under $50 million in annual revenue are the primary targets for cyberattacks, and companies with less than $2 billion in revenue make up 85% of insurance claims. Often small market enterprises fall victim to these attacks because of a lack of cybersecurity protection and numerous vulnerabilities throughout their network. However, all industries and businesses of all sizes are at risk.
Cybercriminals are after all kinds of data
Cybercriminals value any kind of data, especially personal information — from social security numbers, birthdates, credit card numbers, bank account information, or even addresses. The main goal of a cybercriminal is to successfully gain access to sensitive information in the easiest and fastest way possible. Cybercriminals will do anything they can to get ahold of data and if your network includes dozens or even hundreds of personal data sources, the incentive for a hacker to breach your network increases.
The difference between first-party vs third-party cyber insurance
First-party insurance helps you respond to data breaches on your own organization’s network and systems, while third-party insurance helps pay for any lawsuits caused by data breaches on a client or partner’s network and systems. While both policies help you in the event of a data breach, they differ in regard to response and level of coverage.
First-party cyber insurance is coverage for you, the insured. Most first-party insurance covers:
- Destruction of data; malicious or accidental
- The resurrection of a network from malware
- Natural disasters and other accidents that result in data loss
- Restoration of company reputation after a data breach
- Reimbursement for lost revenue
- Payment of ransom to cybercriminals
Third-party refers to a business’s clients, business partners, or vendors, and is the coverage for businesses that are responsible for others’ online security. Most third-party insurance covers:
- Cover any legal fees — attorney fees, court costs, or damages — should a third-party sue your business as the result of a breach
- Restoration of business reputation
- Establish settlements between your business and the client if settled outside of court
- Judgments if you’re found liable for the breach
Choosing the right cyber insurance policy
Organizations are constantly facing obstacles when trying to choose the right cyber insurance policy. Challenges such as a lack of policy standardization, unreliable cyber insurance providers, and inconsistent coverage and pricing structures are prevalent. That’s why we laid out a four-step plan to help you choose the right cyber insurance policy for your business.
Understand your risks
In order to identify the extent of coverage you may need, it’s important to understand the kind of cyber vulnerabilities and risks your organization is exposed to on a regular basis. As you think this through, ask yourself the following questions:
- What kinds of data do I typically store – sales data, personally identifiable information (PII), or payment information? Are these data equally sensitive and require the same level of protection?
- What cybersecurity measures does my organization have in place to prevent cyberattacks?
- Which industry regulations do I need to comply with?
- How likely is it that my organization will experience an actual attack?
- What are the kinds of risks industry peers have faced?
- How confident am I in the level of protection my third-party partners have in place?
- Have my partners, suppliers, or clients experienced a breach in the past?
Answering these questions will better inform decision-making, and provide visibility into the kinds of risks your business should be aware of.
Know your level of need
After you have a better understanding of your risks, assess the types of technologies you rely on and how susceptible they are to an attack. Knowing what security gaps your organization has will help inform where and why you need insurance coverage. Here are some areas you may need to consider for coverage:
- Network security
- Lost or stolen laptops or mobile
- Cyber extortion such as ransomware
- Crisis management and public relations
- Data losses in third-party systems
Compare different policy terms
Cyber insurance providers will offer different policy definitions, coverage options, and terms and conditions. For example, what is considered a security incident to one provider may not be the case for another, and incidents covered may vary between different providers. When comparing different policies, here are some questions that you should ask the insurance providers:
- What types of risks are covered?
- What data types are insured? Is there a particular form of a data breach that is not covered by the policy?
- Does the policy cover business interruptions that are due to cyberattacks?
- Does the policy cover costs that result from accidents, human error, identify theft, insider threats, and more?
Check reviews and consult with industry peers
Look up reviews of different cyber insurance providers to better understand how users or even your industry peers rate them. It’s also important to check the providers’ websites to see the kind of clientele they typically service. Here are some questions to ask yourself as you do more research:
- Does the provider have clients in the same industry as my organization?
- Does the provider service businesses of my size?
- Ask for advice from industry peers to learn which cyber insurance providers are trustworthy and reliable, as well as which offer the best coverage.
How SecurityScorecard can help
Cyber insurance is crucial for companies of all sizes and industries. It is time to invest in cyber insurance because it can help you offset the expensive costs associated with a cyberattack, as well as immediately notify everyone in the event of an incident.
To reduce unnecessary costs and ensure you are getting the best kind of coverage for your needs, organizations need to leverage the power of security ratings to effectively monitor IT networks and understand risks and vulnerabilities. In doing so, underwriters and providers can gain a better understanding of your organization and its needs to accurately issue a cyber insurance policy that’s the right fit for you. Sign up for a free account and get started today!