What Is Cyber Insurance? Why Is It Important?
Cybersecurity insurance, or cyber insurance, helps businesses reduce the risk of cybercrimes like cyberattacks and data breaches. It safeguards organizations from the costs associated with internet-based threats that impact IT infrastructure, information governance, and information policy, which are often excluded from traditional insurance and commercial liability policies.
Cyber insurance coverage functions similarly to how businesses buy insurance for physical risks and natural disasters. It protects an enterprise from losses that may occur due to a cyberattack.
Why Is Cyber Insurance Important?
The process of obtaining cybersecurity insurance is similar to other types of insurance. Many providers that offer business insurance, such as errors and omissions, liability, and property insurance, also sell cyber insurance policies. These policies typically include first-party coverage, which covers losses directly affecting the business, and third-party coverage, which addresses losses other companies suffer due to their relationship with the impacted organization.
A cyber insurance policy helps an organization cover financial losses incurred from a cyberattack or data breach. It also assists in managing expenses related to remediation, including investigation costs, crisis communication, legal services, and customer refunds.
What risks does Cyber Insurance Cover?
Cybersecurity insurance typically covers first-party losses from data destruction, hacking, data extortion, and data theft. Policies may also include coverage for legal expenses and related costs. While coverage can differ depending on the provider and plan, the main areas covered by cyber insurance include:
Customer Notifications
Companies are typically required to inform their customers of a data breach, especially when it involves the loss or theft of personally identifiable information (PII). Cyber insurance often helps businesses cover the costs associated with this notification process.
Recovering Personal Identities
Cybersecurity insurance coverage assists organizations in restoring the personal identities of customers impacted by a breach.
Data Breaches
Situations where someone steals or accesses personal information without proper authorization.
Data Recovery
A cyber liability insurance policy usually allows businesses to cover the costs of recovering any data compromised by an attack.
System Damage Repair
A cyber insurance policy will also cover the expenses of repairing computer systems that a cyberattack has damaged.
Attack Remediation
A cyber insurance policy will assist an enterprise in covering legal fees arising from violations of various privacy policies or regulations. It will also enable them to hire security or computer forensic experts who can help remediate the attack or recover compromised data.
Ransom Demands
In ransomware attacks, perpetrators frequently demand a fee from their victims to unlock or retrieve compromised data. Cyber insurance coverage can assist organizations in covering the costs of fulfilling these extortion demands; however, some government agencies recommend against paying ransoms, as it only makes these attacks profitable for criminals.
Cyber risks that Cyber Insurance Coverage does not include
A cybersecurity insurance policy often excludes issues that are preventable or result from human error or negligence, such as:
Poor Security Processes
If an attack happens due to an organization’s inadequate configuration management or ineffective security processes.
Prior Breaches
Breaches or events that took place before an organization acquired a policy.
Human Error
Any cyberattack resulting from the human error of an organization’s employees.
Insider Attacks
The loss or theft of data resulting from an insider attack, where an employee was responsible for the incident.
Pre-existing Vulnerabilities
If an organization experiences a data breach because it did not address or rectify a previously known vulnerability.
Technology System Improvements
Any expenses associated with enhancing technology systems, including strengthening applications and networks.
Does Cyber Insurance Mean Cyber Defence
Organizations should not view cyber insurance as a substitute for effective and robust cyber risk management. While all companies should obtain cyber insurance, they should see it as a way to mitigate the damage from a potential cyberattack. Their cyber insurance policy must complement the security processes and technologies they implement as part of their risk management strategy.
Cyber insurance providers evaluate an organization’s cybersecurity posture when issuing a policy. A strong security posture allows an enterprise to secure better coverage, while a weak security posture complicates the insurer’s understanding of their approach, leading to ineffective insurance purchases.
Additionally, not investing in suitable or effective cybersecurity solutions can lead to enterprises either being ineligible for cyber insurance or having to pay higher premiums.
How to select the right Cyber Insurance Policy?
The pricing of cyber risk usually depends on an enterprise’s revenue and the industry in which it operates. To qualify, the organization will likely need to permit an insurer to conduct a security audit or supply relevant documentation from an approved assessment tool. The data gathered from the audit will help determine the type of insurance policy the provider can offer and the premiums’ cost.
Three Steps to Mitigate Cyber Risk
Cyber risk poses a major concern for businesses of all sizes and across various industries. Organizations must take proactive measures to enhance their cyber defences and manage their cyber risk by combining cyber insurance, secure devices, domain expertise, and technology.
- Step 1—Assess: The first step in reducing cyber risk is to evaluate cyber readiness with a reputable professional services organization. This process involves conducting a security audit before obtaining suitable cyber insurance.
- Step 2—Implement: The next step is to deploy technology that safeguards the components an organization plans to insure against cyber threats. This may involve using an anti-malware solution to protect the enterprise from the risk of malicious software.
- Step 3—Insurance: The first two steps allow an organization to demonstrate that it has the required processes and technologies to qualify for a provider’s cyber insurance.