The Rise of Cybersecurity Insurance

By Phoebe Fasulo

Posted on Feb 25, 2020

Cybersecurity is shattered. From mom-and-pop shops along America’s Main Streets to Fortune 500 companies, all businesses are potential targets. To protect their bottom line, more corporations are investing in cyber insurance as a method to cover expenses resulting from cyber threats.

Cyber attacks are on the rise

Cyber-attacks have grown at outstanding rates over the past decade. In 2018 alone, there was a 350% increase in ransomware attacks, a 70% increase in spear-phishing attacks, and a 250% increase in business email compromise (BEC) attacks.

There are several key factors that are the driving forces behind the rise of cyber incidents, including:

  • Increased exposure: In an ever-increasing digital landscape, software companies are writing more and more lines of code for companies of all sizes that can be utilized for cyber attacks.
  • Hacker innovations: Cybersecurity technologies adjust their techniques after the threat happens, enabling hackers to modify their hacking techniques for optimum success. Cybersecurity providers take a reactive approach to attacks and cannot predict when new issues will arise.
  • Elusive hackers: Hackers rarely phish where they live. Often, they hack across borders, making it nearly impossible for law enforcement agencies to catch them.

This all means one thing for the cybersecurity insurance market – it will skyrocket. In fact, a recent report by Androit Market Research suggests that the industry will grow from $4 billion to over $23 billion during the next six years alone as more firms invest in cyber protection.

What is cybersecurity insurance?

Cybersecurity insurance, also known as cyber risk insurance or cyber liability coverage (CLIC), will cover a business’ liabilities in the event of a data breach involving sensitive data including credit card numbers, Social Security numbers, and health records. In addition to covering legal expenses and fees, cyber insurance can notify clients about a data breach, fix damaged computer systems, and restore the affected customers’ personal identities.

Cyber insurance debuted on the market in the spring of 1997 and catered to IT companies that were responsible for overseeing systems and networks utilized by other consumers and businesses. Since then, the market has expanded to encompass three forms, including first-party written coverage, third-party written coverage, and implicit cyber coverage also referred to as non-affirmative cyber exposure.

Who needs cyber insurance?

What businesses need cybersecurity insurance? The short answer is every business. All types of commercial entities, including not-for-profit organizations, corporations, and educational institutions, can benefit from having cyber insurance if they collect, process, and store financial or personal customer or employee data.

This sensitive information makes both small and large companies potential targets. All it takes is one successful attack to cause a costly breach of data.

Some reasons you should consider getting cybersecurity insurance are:

  • Cyber incidents happen often: According to a recent Argo cyber insurance survey, almost two-thirds of small and mid-sized enterprises (SMEs) have suffered a cyber attack.
  • The coverage works: 9 out of 10 SMEs state that their cybersecurity insurance covered the incident they suffered.
  • Data is more valuable than oil: Data reigns supreme in today’s economy. It can result in increased revenue, cost savings, and increased efficiency. However, it isn’t covered by standard property insurance. Cyber insurance offers coverage in the event of a data breach.
  • Your electronic system isn’t covered: If a ransomware attack occurs, your electronic system downtime will not be covered by run-of-the-mill business interruption insurance. Cyber insurance fills in the gaps and covers lost profits associated with a cyber-related systems outage.

The future of cybersecurity insurance

The cybersecurity insurance sector currently covers a small percentage of losses that businesses incur after a cyber attack. However, with the rise in malicious cyber activity that has cost the U.S. economy billions of dollars ($109 in 2016) and the $356 million in claims insurance companies have received from policyholders, it is evident that cybersecurity insurance needs will substantially increase.

The cyber insurance sector is trending upward and technologies are evolving at a lightning-fast pace. Regulation trends, the development of cyber risk pools, and increasing awareness about cyber risks will all aid in the bright future of this industry.

Final thoughts

Cybersecurity insurance is essential for companies of all sizes. Not only does it help businesses to mitigate risk exposure by offsetting cyber attack costs, but it also helps to notify customers and employees in the event of a cyber incident.

If you are a business owner, now is the time to invest in this critical insurance.

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