Cyber coverage insurance has become a buzzword in the IT industry as Cybersecurity attacks are becoming more common and much more sophisticated than ever before. According to Businesswire, nearly 81% of organizations have faced at least one type of cyberattack since the start of Covid-19.

Modern companies understand that no matter how much they invest in Cybersecurity, there’s no way to eliminate the risk of threat. Thus, they invest in insurance to protect against some or all of the impact of an incident.

But what is cyber liability insurance? How does it work? And what are some of the key factors to consider when choosing a cyber coverage insurance policy?

Let’s walk through the details!

What Is Cyber Coverage Insurance?

Most people are aware of car insurance, which protects drivers from the aftermath of an accident (injuries, property damage, etc.); cyber coverage insurance is similar. It helps protect businesses from some of the aftermaths of a Cybersecurity attack.

Opting for a cyber coverage policy cannot reverse the damage or reduce IT downtime. However, it can minimize business disruption caused by financial issues from the fallout of a cyber attack and support an organization’s plan to deal with an attack and/or recover from it.

In the post-pandemic age, nearly 30,000 sites are hacked every day. Ransomware payments have skyrocketed to $300,000 on average. While companies such as Apple, Accenture, JBS, Kaseya, and Acer were among the biggest names in the market to be hit with ransomware attacks in 2021, small municipalities and businesses are not immune to attacks, with total attacks worldwide crossing 500 million. Thus, it’s never been clearer that there’s a growing need for a backup solution if defense systems fail.

Cyber coverage insurance combines financial reimbursement and real-time IT assistance to companies and helps them offset costs associated with recovery. However, companies need to understand that they’re solely responsible for their Cybersecurity and that an insurance policy doesn’t shift the liability to the insurer 100%.

In other words, a cyber liability insurance policy doesn’t cover all types of cyber or data breaches. So, you need to ensure you understand what’s covered when opting for a policy – make sure you read the fine print.

Who Needs Cyber Liability Insurance and Why?          

Essentially, any business with a digital trace is vulnerable to attacks. So, whether you run operations on your website or store customer/business data online, you could benefit from cyber coverage insurance.

The data you store, including contact details, credit card numbers, social security, or intellectual property, are all valuable assets cybercriminals can get their hands on and use for different malicious activities, such as extortion or defamation. Getting insurance for this data can help cover remediation costs, including crisis communication, lawsuits, refunds, and security audits/investigations.

Moreover, many governments require businesses to inform their customers of any security issue or data breach involving their personal information. Thus, another great benefit of cyber insurance is that you can prompt them to contact your customers following the incident.

The Most Common Types of Attacks Companies Face

Just as cybersecurity solutions have advanced in the last three decades, so have Cybersecurity threats. Today, hackers and cybercriminals can harm your business in different ways, such as:

1.    Ransomware Attacks

Ransomware is a type of malicious software that enables hackers to take over your system and its data – blocking access to its primary users until a specified sum of money is paid. Ransomware attacks have become incredibly popular in recent years. Security Magazine reported around 2,700 attacks in 2021, which was nearly twice the number of attacks in 2020.

In the past, paying off malicious criminals has been the way to go, especially if they access critical systems and information. However, paying off hackers could perpetuate the ransomware cycle by exposing your vulnerability and showing you’re willing to pay up.

However, opting for a cyber coverage insurance policy can help cover the costs if you take the appropriate measures to secure your systems.

2.    SQL Injection Attacks

Structure Query Language (SQL) injection attacks typically occur in IT infrastructures with large servers and database-driven sites. The process involves manipulating the standard SQL query and injecting malicious code into the search box to prompt the servers to reveal sensitive information.

Moreover, the attackers can also alter and delete the database as they get administrative rights following the injection. Many insurance policies cover SQL injection attacks considering they’re some of the most common threats users and businesses with large databases face.

3.    Identity Theft

Identity theft attacks occur when someone steals your customers’ and/or employees’ identities (contact details, social security numbers, credit card information, etc.) and uses them to commit fraud or other crimes. These attacks can cause financial and legal risks, business downtime, and PR fallout.

4.    Cryptojacking

By definition, cryptojacking refers to the process of hijacking someone’s computer and IT equipment to mine cryptocurrency. This new, unorthodox form of hacking is becoming a well-known practice in large businesses with powerful IT infrastructures.

Hackers typically infect websites via ads with JavaScript code and gain backdoor access into their servers and systems to carry out their mining activities in the background. At the same time, owners remain blissfully unaware of what’s happening.

Since mining requires a lot of processing power, businesses could incur losses in the form of system disruption, hardware malfunction, or data loss. With cyber coverage insurance, users can cover some or all of the costs associated with investigations, forensic accounting, and recovery.

5.    Credit Card Skimming

A huge percentage of consumer data breaches involve credit card skimming. Cybercriminals use their information to rack up fraudulent charges. In most cases, the activities are discovered too late before being shut down. Consequently, businesses with vulnerability gaps in their payment systems have to pay back customers for the false charges and Cybersecurity services to fix the issues.

Opting for cyber insurance, in this case, can help mitigate some of the costs, such as communicating with customers to address the breach or installing encrypted devices to prevent future attacks.

What Does Cyber Coverage Insurance Cover?

Like home and car insurance, cyber liability coverage depends on the policy you purchase and the provider you shop from. However, most companies cover the following aspects of Cybersecurity attacks:

1.    Communications

Most cyber liability insurance policies cover the costs associated with communication following a breach or incident. Following these events, businesses have to shift from business as usual to creating a communication strategy to inform all stakeholders involved – customers, employees, the media, and other third parties (partnered businesses or services).

Depending on your company’s size or the severity of the attack, you may need external resources (communication equipment) and professionals (agents) to engage with affected users while in-house teams work on fixing the core issues.

2.    Network Security

Most companies, especially those subject to privacy risk, opt for cyber insurance to get network security coverage. This coverage helps them cover the losses incurred due to network security failure caused by ransomware, malware, extortion, etc. Coverage typically includes:

• Ransomware payment
• IT forensics
• Lawsuits and other legal expenses
• Breach communication with clients
• Data recovery
• Online reputation management
• Identity restoration

3.    Network Business Interruption

Most modern businesses are highly dependent on technology to carry out their day-to-day operations. In the event of a cyber threat that disrupts technology and workflow, network business interruption coverage covers the lost profits during this period.

Moreover, it can also cover some or all of the expenses related to fixing the hardware or software issue that disrupted operations, along with any third-party service fees and other extra charges incurred.

4.    Privacy Liability

Privacy liability coverage is crucial for online businesses, especially those with large client databases containing sensitive information. In most cases, Cybersecurity threats open businesses to liabilities following breaches or privacy violations that expose user data.

This aspect of cyber insurance protects businesses from the third-party costs that arise after an incident. For instance, it can cover the legal costs that arise from defending your business from class action suits and data breach settlements. It can also cover fines and penalties inflicted by GDPR or CCPA following a privacy event or violation.

5.    Response and Recovery Coverage

Most security incidents require prompt response and recovery for smooth and continuous operations. However, many small businesses do not have the tools or expertise to determine the cause of the breach or to fix it. Thus, they’d have to bring in external teams to help them recover and prevent future attacks.

This can be a costly process – one not many small businesses can afford. Therefore, most cyber insurance policies cover the costs associated with response and recovery, from hiring to hardware/software procurement, patching, configuration, and monitoring.

6.    Media Liability Coverage

Modern companies understand the primary types of damage inflicted upon businesses by cyber attacks, such as financial and data losses. However, another problem businesses have to deal with in the aftermath of an attack is reputation damage.

Most media-related companies, such as advertising agencies, broadcasters, and publishers, opt for media liability insurance to cover expenses related to intellectual property infringement and online/offline advertising to reverse the damage.

7.    E & O Coverage

Errors and omissions (E&O) coverage is designed to cover all costs related to breach of contract or negligence due to attacks that stop businesses from carrying out their processes or offering their services efficiently. For instance, many technology services rely on software solutions to carry out their tasks.

A cyber event could stop them from completing their tasks or catering to their client’s needs, resulting in disputes or even lawsuits. E & O coverage pays for some or all of the legal defense costs due to errors or failures, depending on your policy and provider.

What Does Cyber Coverage Insurance “Not” Cover?

As with an insurance policy, businesses need to understand that cyber liability insurance comes with several exclusions. Generally, policies don’t cover the following:

1.    Potential Lost Profits in the Future

Insurance companies aren’t responsible for any lost profits due to Cybersecurity attacks that disrupt workflow and inflict other types of damage that affect their revenue streams.

2.    Intellectual Property (IP) Value Degradation

Insurance providers don’t cover the loss of value caused by intellectual property infringement or data loss.

3.    Infrastructure Enhancement

Insurance companies may cover the costs associated with faulty hardware, but they do not cover the costs of infrastructure enhancement following a Cybersecurity attack.

Qualifying for Cyber Insurance

Whether you’re looking to have a safety net in place or meet compliance or contractual requirements, you need to qualify for cyber liability insurance before being able to reap its benefits. In recent years, most providers have changed their compensation conditions, tightened their policies, and increased their premiums.

Some have also increased their minimum requirements to decrease their liability and risk. Although most companies have unique acceptance criteria, here’s what most look for in companies seeking coverage:

1.    Multifactor Authentication

The first thing most providers look for when assessing eligibility is the proactive measures businesses have taken to prevent security issues, such as setting up multifactor authentication.

This security method typically involves using multiple identity verification steps, such as passwords, one-time passwords (OTP), and even facial recognition, to grant access to accounts or services. The greater the number of layers, the greater the chances of application approval and compensation.

2.    Backups and Contingencies

The next important factor insurers consider during the assessment is the number or quality of backups businesses have in place to minimize business disruption or prevent data loss. Companies with different contingencies are more likely to keep attackers at bay. Thus, they make excellent clients for insurance companies.

3.    Continuous Transformation

Cyber coverage insurance companies prefer businesses that regularly continue to transform by upgrading their IT infrastructure with new, advanced hardware and more powerful software. Many companies constantly patch their systems to remove any system weaknesses and prevent/stop ransomware attacks.

4.    Access Management

Finally, another important factor insurers consider is access management, especially in remote business models. For instance, they’re more likely to accept clients that use VPNs to access information or log in to their accounts instead of connecting directly from the computer. Simply put, businesses with restricted access are safer.

To summarize, businesses have to show that they’re committed to improving and maintaining their security infrastructure to reduce as much of the risk as possible before they’re considered.

Key Factors Affecting Cyber Liability Insurance Costs

The cost of cyber insurance varies significantly depending on the following factors:

1.    Industry

The first factor that affects insurance premiums is the industry you’re involved in. For instance, healthcare, retail, finance, insurance, public administration, and education are among the most targeted industries for cyber attacks. Therefore, companies from these industries are likely to pay a higher cost for insuring their data and infrastructure.

2.    Cyber Risk Profile

Perhaps, the most important factor that affects the cost of cyber insurance is an organization’s cyber risk profile. For instance, companies that collect or handle personally identifiable information (PII), payment card information (PCI), or protected health information (PHI) are at more risk of security threats and attacks.

Moreover, businesses that rely heavily on confidentiality and store silos of sensitive data are prime targets for malicious activities. Thus, healthcare facilities and law offices typically pay more for cyber insurance.

Businesses that rely heavily on websites or mobile applications to interact with customers and carry out their processes remotely are more likely to pay a higher premium. Other risk factors include the number and types of third-party vendors, types of devices used, work locations, etc.

3.    Others

Other factors that affect the cost of insurance include the type of coverage (network security, privacy liability, etc.), coverage amount, size of the company, and regulatory requirements from bodies, such as the GDPR, to name a few.

Conclusion

So, there you have it – a brief guide to cyber coverage insurance. To summarize, this coverage type can be incredibly helpful to organizations that lack the resources to cover the costs of security issues themselves. Cyber insurance can help to offset some or all of the expenses and help victims of an attack carry out their day-to-day operations.

However, you need to understand that cyber liability insurance is not a substitute for solid threat prevention and minimization strategies. Organizations must be able to demonstrate the implementation of preventive systems to be eligible to apply for insurance plans. They also need to thoroughly assess and improve their risk profile to ensure they cover all the gaps in their systems.