Now that all businesses are digital businesses, cybersecurity has become a top priority for organizations of all sizes. Cyberattacks can be devastating for a company, resulting in data breaches, financial losses, and reputation damage that could inhibit future growth.
While any good cybersecurity plan includes playbooks for varying threats, vulnerabilities, and breaches, one way that companies can protect themselves from the financial impact of cybercrime is by purchasing cybersecurity insurance. The cyber insurance market has grown substantially since 2020, but many organizations have never heard of it—or if they have, they’re unsure whether it’s something they should buy. So let’s fix that.
Read on to explore the fundamentals of cybersecurity insurance, familiarize yourself with some big players in the cyber insurance space, and determine if it makes sense for your organization to invest.
Cybersecurity insurance, also known as cyber liability insurance or cyber insurance, covers a company's financial losses resulting from a cyberattack or data breach. It can provide coverage for a range of expenses, including legal fees, public relations costs, and expenses related to data recovery.
Cybersecurity insurance policies vary widely in terms of the types of coverage they offer and the exclusions and limitations that apply. Some policies may cover only certain types of cyber incidents, such as data breaches or ransomware attacks, while others may provide broader coverage for a range of cyber threats. Ransomware is the leading cause of cyber insurance claims.
Generally, a cyber insurance policy will include provisions for first-party coverage (that is, direct costs incurred on your business by an attack) and third-party coverage (losses experienced by other people because of the attack).
Cybersecurity insurance can be an important tool for mitigating the financial impact of a cyberattack or data breach. While cybersecurity measures such as firewalls, antivirus software, and employee training can help to prevent cyber incidents, no system is completely foolproof. Even the most sophisticated cybersecurity setup can be bypassed by determined hackers or made vulnerable by human error.
When a cyber incident does occur, the financial impact can be significant. The costs of a breach—not just the hard costs, but those associated with business disruption as well—add up quickly, and many companies don’t have the financial resources to absorb these expenses without assistance.
Cybersecurity insurance helps mitigate these financial risks by providing coverage for those costs. It can also provide access to resources such as legal and public relations support that can help companies navigate the aftermath of a cyberattack.
While cybersecurity insurance can be a valuable tool for protecting a company, it may not be necessary or appropriate for every business. Here are some factors to consider when determining if your company should buy cybersecurity insurance:
1. Your risk profile
The first step in determining if your company should buy cybersecurity insurance is to assess your risk profile. Consider the types of data your company handles, the number of employees and customers you have, and the nature of your industry. Companies that handle sensitive information such as financial or medical data are at higher risk for cyberattacks than those that don’t—in fact, 45 million people were impacted by healthcare security breaches in 2021 alone.
2. Your cyber hygiene
Next, assess the effectiveness of your current cybersecurity state [LINK]. Do you have firewalls, antivirus software, and other security measures in place? Do you conduct regular employee training on cybersecurity best practices? Do you have playbooks that cover multiple risk scenarios? The more effective your existing cybersecurity measures, the lower your risk of a cyber incident, and the less likely you are to need cybersecurity insurance.
3. Regulatory requirements
Many industries are subject to regulatory requirements related to data privacy and security. Depending on the nature of your business, you may be required to have cybersecurity insurance as part of your compliance obligations.
4. Cost-benefit analysis
Finally, consider the cost-benefit of purchasing cybersecurity insurance. While cybersecurity insurance can be valuable in mitigating the financial risks of a cyber incident, it also comes with a cost. Consider the cost of the insurance policy, the deductibles and exclusions that apply, and the potential benefits of the coverage. We believe strongly that an ounce of prevention is worth a pound of cure, but not if the cost outweighs your org’s needs.
Here are some situations where an organization may not need to purchase cybersecurity insurance:
1. Small businesses with limited digital footprint
Small businesses with a limited online presence and minimal digital assets may not need cybersecurity insurance. If a business doesn’t store sensitive customer information or rely heavily on digital systems, the risk of a cyber incident may be low enough that insurance is not necessary.
2. Companies with limited financial resources
Cybersecurity insurance can be expensive, and businesses with limited financial resources may not be able to afford the premiums. In this case, it may be more cost-effective for the business to invest in cybersecurity measures and allocate resources toward incident response planning.
3. Companies with outsourced IT
If a business outsources IT functions to a third-party provider, the provider may already have cybersecurity insurance in place that covers clients. In this case, the business may not need to purchase additional insurance.
Ultimately, deciding whether to purchase cybersecurity insurance takes a careful assessment of your company’s risk profile and financial resources. While insurance can provide important financial protection against cyber incidents, it doesn’t make sense for everyone.
If you do decide to purchase cybersecurity insurance, there are many providers to choose from. You might be surprised at a few on the list—cyber insurance sounds so specialized, but many major carriers have expanded to cover cyber risk. Here are a few of the top companies currently offering cybersecurity insurance:
Chubb is a leading provider of cybersecurity insurance, offering coverage for a range of cyber incidents such as data breaches, network damage, and cyber extortion. Their policies can be customized to meet the needs of individual businesses and include features such as incident response planning and cyber risk assessments.
AIG is another global provider of cybersecurity insurance, offering coverage for a range of cyber risks, including data breaches, cyber extortion, and network interruption. Their policies can be tailored to an org’s specific needs, and they offer a range of services to help companies prepare for and respond to cyber incidents.
Travelers is a well-known insurance provider that offers cybersecurity insurance to businesses of all sizes. They have a range of resources to help companies manage their cyber risks, and offer coverage options that aren’t always available, such as forensic investigations, litigation expenses, and crisis management expenses.
Beazley is a specialty insurer that offers a cybersecurity insurance solution that can be specified by market (e.g. InfoSec, MediaTech, and small business). Their policies are designed to provide comprehensive coverage for a range of cyber risks, and they offer a range of discounted services to help businesses prepare for and respond to cyber incidents.
Hiscox is a global insurance provider that offers cybersecurity insurance to businesses of all sizes. Their policies include coverage for lost data and business revenue, defense against privacy lawsuits, breach response resources in the event of a cyberattack, and more. They also offer an upgrade to defend and resolve claims related to digital media.
Cybersecurity insurance can be an important tool for protecting businesses from the financial impact of cyber incidents. However, it’s not a universal remedy. By assessing your risk profile, evaluating your current cybersecurity measures, considering regulatory requirements, and weighing the cost-benefit of purchasing cybersecurity insurance, you can determine whether this type of coverage is right for your org.
Keep in mind that cyber insurance is not a substitute for robust cyber health and employee training. It should complement these measures by providing an additional layer of protection against cyber threats. Ultimately, the decision to purchase cybersecurity insurance should be based on a careful consideration of your company's risk profile and financial resources, so that regardless of the final decision, you set your business up for long-term success.