What Is Cyber Insurance? Protecting Your Company’s Digital Footprint
January 18th, 2023
Every time someone in your company sends an email, creates an account, posts an image, or tags someone online, it contributes to your company’s digital footprint. While it is impossible to track every digital move to ensure your company is secure, you can purchase the proper business insurance to protect your interests if your company gets hacked.
In addition to digital security systems, cyber insurance offers the best digital protection to help your company manage a data breach and protect against cases of stolen identity. While the number of data breaches dropped by nearly half in 2020, the volume of records that were subject to threats increased by 141%. Incidents affected large and small businesses.
What Is Cyber Insurance?
The basic premise of insurance is to transfer some risks to an insurance company in exchange for paying a premium. Cyber insurance is a type of insurance companies can purchase to decrease the financial risks of doing business online.
Cyber insurance goes by several other names, including cyber liability, cybersecurity liability, cyber risk liability, and data breach liability. This type of insurance primarily pays for losses associated with cybersecurity incidents such as data breaches, stolen identities, and cyberattacks. A cyber insurance claim helps companies recover from the negative effects of such incidents and contend with any resulting lawsuits.
According to Statistics Canada, nearly a fifth of companies became victims of cybercrime in 2021. As a result, businesses had to take steps to protect customer information. They lost money and suffered reputational damage.
Cybercrime continues to be pervasive, and it is growing in sophistication. In response to the seriousness of threats, companies have a responsibility to be diligent about protecting data and establish policies to ensure all employees do their best to keep cyberattacks at bay.
The risks of not protecting your company’s digital footprint are very high. Cyber insurance adds an extra layer of protection to assist companies in dealing with cyber threats.
Why Your Business Needs Cyber Insurance
You may be wondering why your business needs cyber insurance at all. While commercial general liability insurance policies are fairly comprehensive, they usually exclude cyber risks. Cyber insurance emerged as a stand-alone coverage to cover the gap in general liability coverage.
Unfortunately, many business owners do not fully appreciate how serious a cyberattack can be and how profoundly it can impact their businesses until it happens. Here is a snapshot of the negative impacts businesses victimized by cybercrime may have to face:
- Loss of customers
- Loss of revenue
- Theft of third-party data
- Reputational loss
Businesses, even small businesses, can be liable for damages if third-party data gets stolen. That is why it has never been more important for businesses of every size to purchase a cyber liability policy.
Any company that stores information, accepts payments online, or uses cloud services is a candidate for a cyber insurance policy. That pertains to nearly every company in Canada as the majority use computers to conduct business, and most have a website.
Cybercriminals often attack small business enterprises because around 47% of them do not allocate any portion of their budgets to cybersecurity protection. That percentage is quite high, considering 33% of small businesses did not leave room in their budgets to purchase cyber insurance in 2019.
Cybersecurity Recommendations by the Canadian Government
The Canadian government issued a publication for small and medium-sized businesses (under 500 employees) that outlines recommendations to improve resiliency to cyberattacks.
The government recommends the following:
- Assess which digital systems need to be secure and the resulting potential financial impact
- Automatically patch operating systems and apps
- Implement security software and bolster firewalls
- Securely configure devices
- Use two-factor authentication
- Back up and encrypt data
- Secure websites, mobile devices, and portable media
- Secure cloud and outsources services
- Control access to systems and accounts
- Develop an incident response plan
- Provide employee awareness training
While these are important steps for businesses to take, the potential for cybercrime still exists. Cyber insurance will help companies manage a breach if it happens.
What Does Cyber Liability Cover?
Cyber liability generally covers first-party coverage to protect the company and third-party coverage to protect anyone outside the company impacted by a cyberattack.
This coverage helps business owners recoup the costs associated with recovering from a cyber loss, including:
- Payment for IT expertise in meeting extortion demands and recovering compromised data
- Costs associated with notifying customers of a breach and restoring their identities
- The costs associated with customer credits or refunds
- Costs to repair or replace damaged or compromised computer systems
- Payment for legal assistance
Cyber liability insurance policies cover many issues associated with a cyberattack, yet cyber insurance policies contain exclusions just as any other insurance policy does. Small business owners and large corporations should be aware of the issues they will have to pay out of their pockets if a cyber incident occurs.
What Does Cyber Liability Not Cover?
Every policy carries different exclusions, so business owners need to understand their cyber liability insurance policies. If there is any confusion, an insurance professional can explain the policy’s conditions and exclusions.
Here are some common cyber liability exclusions business owners should be aware of:
- The cost of upgrading systems to prevent future cybersecurity incidents
- Cost of losing future profits related to reputational damage caused by a breach
- The cost of a decrease in the company’s valuation due to the theft of intellectual property
- Losses due to faulty hardware
- Losses due to intentional and dishonest acts
- Costs associated with employee theft, fraud, or robbery
Purchasing cyber liability insurance policy is a small price to pay considering the potential for a cyberattack, along with the disruption to a business and the risk of financial loss.
Business owners should know that cyber insurance is just one component of protecting a business against cybercrime. It is beneficial for a business owner to follow the best practices for cybersecurity and the Canadian government’s recommendations for cyber incident prevention. Furthermore, insurance companies may have requirements for businesses to prevent cybercrime from occurring before they approve a policy.
Overall, secure systems, well-established cybersecurity procedures, a strong cybersecurity stance, and compliance audits will position businesses well to protect against cyberattacks. To learn more about how to protect your company from cyberattacks, contact one of our insurance professionals at Duliban Insurance Brokers at 855-385-4226 today!