Cyber breach insurance, also known as cyber liability insurance or cybersecurity insurance, is a type of coverage that helps protect businesses from the financial losses resulting from data breaches and other cyber incidents. It covers expenses related to investigating and responding to a breach, as well as legal liability and regulatory fines.
In the event of a cyber attack, cyber breach insurance can help pay for:
Forensic investigation and data recovery
Notifying affected customers and providing credit monitoring services
Legal fees and settlements from lawsuits
Regulatory fines and penalties
Repairing damaged computer systems
Lost revenue from business interruption
Public relations expenses to repair brand reputation
Cyber breach insurance is becoming increasingly important as cyber threats continue to grow in frequency and sophistication. Traditional business insurance policies often exclude cyber-related losses, leaving companies vulnerable to the high costs of data breaches and other cyber incidents.
Why is Cyber Breach Insurance Important?
Cyber breach insurance is critical for businesses of all sizes to manage their cyber risk and protect against the potentially devastating financial consequences of a data breach. Some key reasons why cyber breach insurance is important:
Data breaches are common and costly: According to IBM's Cost of a Data Breach report, 83% of organizations have had more than one data breach, with the average breach costing $4.35 million.
Cyber attacks are inevitable: 57% of business leaders believe cyberattacks are inevitable, according to the Travelers Risk Index.
Traditional insurance often excludes cyber coverage: Standard business insurance policies like general liability and errors and omissions typically don't cover cyber-related losses, leaving companies exposed.
Cyber insurance helps with recovery: Cyber breach insurance can help companies limit damage, recover more quickly, and raise their overall level of cyber resilience after an attack.
Cyber insurance is increasingly required: Many businesses are now requiring their vendors and partners to carry cyber insurance to mitigate third-party risk.
What Does Cyber Breach Insurance Cover?
Cyber breach insurance policies can vary in their specific coverage, but most offer a combination of first-party and third-party coverage:
First-Party Coverage
First-party coverage pays for the insured company's own losses and expenses resulting from a cyber incident. This typically includes:
Costs of investigating and determining the cause of the breach
Expenses to notify affected individuals and provide credit monitoring
Lost income and extra expenses due to business interruption
Costs to restore and recover data and systems
Cyber extortion payments and related expenses
Public relations and crisis management costs
Third-Party Coverage
Third-party coverage protects the insured company from liability claims brought by others due to a cyber incident. This usually covers:
Lawsuits and settlements from customers, clients or partners
Regulatory fines, penalties and legal defense costs
Liability for defamation, copyright infringement, etc.
Some key things to look for in a cyber breach insurance policy:
Coverage for data breaches, cyber attacks, and incidents involving vendors
Worldwide coverage, not just in the U.S.
Duty to defend against lawsuits and regulatory investigations
Excess coverage over other applicable insurance
24/7 breach hotline and incident response services
What is Not Covered by Cyber Breach Insurance?
While cyber breach insurance provides broad coverage, there are some common exclusions:
Attacks caused by known vulnerabilities that weren't patched
Losses due to human error or negligence
Insider threats and attacks by malicious employees
Acts of war or terrorism
Outages caused by system misconfigurations
Vendor and partner breaches (unless specifically covered)
Social engineering attacks like phishing (unless added coverage)
It's important to carefully review a cyber breach insurance policy to understand what is and isn't covered. Cyber insurance should be viewed as one component of a comprehensive cyber risk management strategy, not a replacement for strong cybersecurity practices.
How Much Does Cyber Breach Insurance Cost?
The cost of cyber breach insurance can vary widely depending on factors like:
The size and revenue of the business
The industry and associated cyber risks
The amount and type of data the business handles
The company's cybersecurity posture and risk management practices
The desired coverage limits and deductibles
In general, cyber insurance premiums have been rising rapidly in recent years. According to Marsh McLennan, cyber insurance prices rose by 110% in the first quarter of 2022.
To qualify for cyber breach insurance, businesses typically need to undergo a security assessment or provide documentation of their cybersecurity controls. Insurers use this information to determine the appropriate coverage and premium.
How to Choose a Cyber Breach Insurance Policy
When selecting a cyber breach insurance policy, consider the following:
Ensure the policy provides adequate coverage limits for your business needs
Look for a policy that covers all the key areas like data breaches, cyber attacks, business interruption, and liability
Choose a policy with a reputable, financially stable insurance provider
Opt for a policy that provides access to pre-vetted cybersecurity and incident response providers
Consider the policy's deductibles, co-insurance requirements, and exclusions
Ensure the policy keeps pace with evolving cyber threats and regulations
It's also important to work closely with an insurance agent or broker who specializes in cyber insurance to help navigate the complex and rapidly changing cyber insurance landscape.
Frequently Asked Questions
1. Do I really need cyber breach insurance if I already have cybersecurity measures in place?
Yes, cyber breach insurance is still important even with strong cybersecurity controls. No security measures are 100% foolproof, and cyber insurance helps protect against the financial impact of incidents that do occur.
2. How much cyber breach insurance coverage do I need?
The appropriate coverage limits depend on factors like your business size, industry, data assets, and potential liability. Work with an insurance agent to determine the right coverage amount for your specific needs.
3. Will cyber breach insurance cover the cost of a ransomware payment?
Many cyber insurance policies do cover ransomware payments, but some insurers are limiting or ending this coverage due to the high costs. Coverage for ransomware payments should be verified with the specific insurer.
4. How can I lower my cyber breach insurance premiums?
Implementing robust cybersecurity controls, having a strong risk management program, and maintaining good cyber hygiene can help lower cyber insurance premiums. Insurers look favorably on businesses that proactively manage their cyber risks.
5. What should I do if I experience a cyber incident that may trigger my insurance policy?
Immediately notify your insurance provider and work with them to determine if the incident is covered. Follow the policy's incident reporting requirements and cooperate with any investigations.
In conclusion, cyber breach insurance is a critical component of a comprehensive cyber risk management strategy for businesses of all sizes. By transferring some of the financial risk of cyber incidents, cyber insurance helps organizations recover more quickly and maintain business continuity in the face of growing cyber threats.