What Is Cybersecurity Insurance?

Data breaches are an everyday occurrence. The stealing of information and exposure of sensitive data are common incidents in today’s society. 

Not too long ago, government officials and business owners kept important information safe with a lock and key—that was enough to protect sensitive files and documents. However, in the digital age that we live in now, stealing information is easy when it’s not protected properly.

A data breach can do more than just expose private information; it can damage reputations, taint relationships with other businesses, and sometimes it can even have the power to put the entire business at risk of closing and losing everything. 

These are some reasons cybersecurity insurance policies exist. They’re there to cover more than the damage—they’re there to protect livelihoods and create a shield strong enough to protect the most valuable information from thieves and hackers. 

Cybersecurity insurance can offer business owners and individuals with the best tools for protection against cyber crimes, business interruptions, and cyber extortion along with the best ways to recover lost data. 

Because cyber safety is a fairly recent addition to our day-to-day lives, choosing the best policy for your business can feel like a daunting task. With all the information available out there, it is impossible to make a quick decision. 

Here’s all you need to know.

What Exactly Is Cybersecurity Insurance?

Before researching the best policies out there, it’s important to first understand what this type of insurance is and what most policies can offer their clients. 

Essentially, cybersecurity insurance protects a business from online crimes and covers the costs to recover any data that was stolen or lost. Things like hacking and phishing attacks are covered under most cybersecurity policies, which are the most common types of liabilities a business faces. 

It’s also important to note that cybersecurity insurance has the capability of enhancing security protocols that are already in place. Often, sensitive information is exposed by mistake, for example. Having a cybersecurity insurance policy can protect your business from that happening, whether intentionally or accidentally. 

What Does Cybersecurity Insurance Most Commonly Cover?

If you’re not familiar with cybersecurity insurance policies, it’s important to be on the lookout for certain things that should be covered under the policy you’re considering. 

  • Data Breaches
    These are attacks that can bring down your entire network and halt any type of business-related communications and expose sensitive client information. These types of breaches can spread through all connected devices, which makes it particularly difficult to regain control over your files.
  • Extortion Demands
    It’s not entirely uncommon for the person (or group of people) behind the data breach to expect something in return for them to not expose confidential files.. These types of insurance policies typically cover any damages and costs associated with extortion demands.
  • Ransomware
    This type of attack refers to a software that will lock up devices and threaten to leak all the information in them. Ransomware eventually leads to data breaches that have the potential of affecting the reputation of the entire company.
  • Profit Loss
    If your company were to face any type of cyber attack, like data breaches and ransomware, cybersecurity insurance can help cover costs and extra expenses associated with reputation damage to the brand and fraudulent activities that tricked you or employees into paying fees that did not exist. 

What Cybersecurity Insurance Doesn’t Cover

Though the benefits of these types of policies are many, there are some things that cybersecurity insurance will not cover. It’s important to understand this so that there are no surprises later.

  • Criminal Proceedings
    Should there ever be an instance in which the data breach was big enough for you to feel the need to go through a court and settle, cybersecurity insurance will most likely not cover any costs associated with criminal investigation or criminal action.
  • Infrastructure Interruption
    Sometimes, depending on the type of data breach companies experience, there is an interruption to things like water, gas, or electricity. These types of insurance policies rarely cover expenses that have to do with turning infrastructure back on.
  • Transfer of Funds
    Most policies will offer some coverage toward funds that deal with the cyber crime itself. However, it’s important to note that insurance policies for cybersecurity will not cover claims for general loss or theft that does not have to do with a cyber crime. 

How Do You Know if You Need Cybersecurity Insurance?

Added security to your most sensitive files is always a good idea. However, if you’re concerned about whether you truly need this type of policy, here are some things you should consider.

If your business currently stores personal information from clients, accepts credit cards through websites, and keeps financial data stored in cloud services, then you need cybersecurity insurance. 

Here’s the thing, according to the Identity Theft Resource Center, in 2018 around 571 businesses experienced some type of data breach, which exposed over 415 million employee and customer records. A cybersecurity insurance policy can help recover all the exposed data and give your employees and your customers peace of mind knowing that their information is safe in your hands. 

Things to Consider Before Purchasing a Policy

Besides all the positives that come with purchasing a cybersecurity policy to help protect your business, there are some things buyers should consider before making the big jump. 

Always keep in mind that even though these types of insurance policies will help cover damages and recover lost data, companies and employees can help reduce the likelihood of cyber crimes in their system by making simple adjustments to their routines in the office. 

  • Regular staff training It is key to maintain the employees up to date with all changes to security protocols in the office. It can also help maintain privacy and confidentiality on the most important matters pertaining to the business. 
  • Legal Changes – like training, it’s also crucial to keep up with any legal changes or updates that can affect the company and the policy that you decide to purchase for the business.
    Considering that cybersecurity is a relatively new added worry, cybersecurity laws are always changing; this can affect how your policy protects you. It’s not a bad idea to do sporadic checks on the details of your policy and make sure that it would still cover threats that your company is exposed to.
  • Data Encryption – This is something that is fairly easy to teach your staff. Data encryption basically involves scrambling the data that’s on a disk so that it’s only available with a decryption key. 

How Much Does Cybersecurity Insurance Cost?

Just like with most policies, the costs of cybersecurity insurance vary depending on the company you go with, what type of policy you choose, and how much it covers. 

These types of policies can range from about $1,500 per year for a $1 million in coverage, with deductibles as high as $10,000. 

Of course, the costs can vary depending on key factors that form part of the policy you choose. 

  • Strength of Security Measures
    This is one reason staff training is important, because insurance companies will reward businesses with lower insurance policy costs when they feel that they’re already doing everything they can to prevent cyber crime. Implementing things like software security and consistently updating security protocols can change the cost of premiums.
  • Data Sensitivity
    How sensitive your data is really depends on what kind of company you have and how big it is. Companies like Microsoft or Facebook, for example, have a greater need to protect data because of the information stored in their cloud services. The bigger the company, the higher the cost of the insurance because there’s more to protect and more at risk.
    If you are the owner of a small business with low-risk information stored in your systems, then chances are the costs of your premiums will be significantly less than those of bigger companies.
  • Company Industry
    The type of industry your company forms a part of is one of the most important characteristics in determining the cost of your cybersecurity insurance policy. This is because insurance companies, depending on your industry, will place you at either low, medium, or high risk and this will determine the yearly premium cost for your company’s security services.
  • Revenue
    Along the same lines as the size of your company and the type of industry you’re in, revenue is a big factor in determining how much you will pay annually for cybersecurity insurance. The more your business makes, the higher the risk for someone to want to jeopardize your business which will increase costs for cyber liability insurance. 

Making the choice of adding a cybersecurity policy to the list of costs that come with owning a business can feel like a lot—maybe even like it’s not that necessary. Before making the choice, know that even though you probably already have security measures in place to protect sensitive data, there are always new ways to break into systems. 

Continuously updating security measures can help. However, a cybersecurity insurance policy offers an extra layer of security that can make it easier to recover should you have a data breach. 

Costly? Yes. But never as costly as it would be to damage the reputation of the business and lose everything.