What is Cyber Liability Insurance: A Guide for Businesses

Understanding the Importance of Cyber Insurance

Most organizations today rely on digital tools and connectivity in the course of business. As technology has become embedded in many critical business operations, cyber risk continues to evolve, and organizations remain vulnerable to data breaches. Fortunately, there are tools, resources, and strategies that companies can leverage to mitigate and respond to a dynamic cyber risk landscape.

One of the most critical solutions you should consider for your business is cyber liability insurance. Understanding how cyber liability insurance works and the resources it provides can help you maximize the value of your digital tools and gain access to critical protection that helps you prevent and respond to cyber events. So, what is cyber insurance and why should you have it for your business? In this article, we review the value that cyber insurance can provide, and why it should be part of your risk mitigation plan.

What is Cyber Insurance?

Cyber insurance, or cyber liability insurance, is a specialized type of insurance specifically designed to protect businesses from the detrimental impact of cyber events. When you purchase this coverage for your business, it may provide financial protection in the event of data breaches, ransomware attacks, and other digital threats, though it’s important to note that coverage can vary greatly from policy to policy. 

Should you experience a cyber event, remediation efforts can quickly become complicated, expensive, and prolonged without the proper guidance and support. A comprehensive cyber policy can address these challenges by covering legal fees, notification costs, credit monitoring, public relations efforts, and more. This helps you better mitigate the financial impact of these attacks, rebound with less down time, and protect your reputation.

Who Needs Cyber Coverage?

Technology and business go hand in hand, and this relationship is one that’s here to stay. Because of this reality, any business, no matter its size or industry, can benefit from cyber insurance. However, it’s important to note that there are certain kinds of businesses that have proven to be particularly vulnerable to cyber threats over time. Over time, bad actors have learned to identify which organizations have limited resources to triage cyber risk, and those that handle lots of valuable, sensitive data.

Small Businesses and Startups

Since small businesses and startups often have minimal cybersecurity budgets, this can make them attractive targets for cybercrime. For companies with lean cybersecurity teams, cyber insurance can provide access to critical resources and reliable experts that bolster cybersecurity posture.

The Technology Sector

From IT consultants to a software providers, players in the technology industry handle vast amounts of sensitive data and rely heavily on digital infrastructure. As technology providers, cyber breaches can have a ripple effect across the cyber supply chain and impact many companies and their data. Because of this, both cyber insurance and professional liability insurance are critical coverages for companies in the technology sector.

Healthcare Providers

In recent years, the healthcare industry has been in several cyber incident related headlines. In the eyes of bad actors, healthcare organizations own a treasure trove of sensitive patient information in their virtual environments, which makes them an attractive target. With the resources available through some cyber insurers, healthcare entities can learn how to implement strategies that protect this valuable data.

Financial Institutions

Banks and financial institutions are susceptible to cyberattacks both because of the valuable financial data they possess and their direct access to funds. And with the SEC’s newest regulations, cyber risk is also becoming a significant management liability risk. Having cyber insurance and directors and officers coverage can help financial institutions stay protected as the cyber landscape continues to evolve.

Most Prevalent Cyber Threats to Businesses

Developing an understanding of the cyber threats you face is one of the first steps you can take to tailor cyber insurance to your needs and tap into its value. Furthermore, knowing what you’re up against can help you better prepare and protect your business.

These are some of the most prevalent threats to look out for:

Phishing Attacks

Phishing is a type of social engineering cyberattack that aims to acquire private personal or financial information using fraudulent email messages, text messages, and/or phone calls. These messages often create a sense of urgency, curiosity, or fear to prompt victims to click on links, or open attachments containing malware with the intent of obtaining information such as usernames, passwords, banking information, or other sensitive data.

Ransomware

Ransomware is a type of malicious software designed to gain access to or damage a computer without the owner’s knowledge, with the goal of acquiring as much data as possible prior to discovery. Unlike other types of malware, ransomware specifically aims to encrypt, delete, rename, or relocate data, and then demand payment from the victim in exchange for restoring access to the data.

Insider Threats

Insider threats refer to the potential risks posed to an organization’s cybersecurity by individuals within the organization, such as employees, contractors, or business partners, who have access to sensitive information and systems. These individuals may intentionally or unintentionally misuse their access to compromise the organization’s security. Insider threats can include actions like data theft, unauthorized access to systems, or the introduction of malware.

DDoS Attacks

Distributed Denial of Service (DDoS) is a type of cyberattack in which a large number of internet-connected devices are used to flood a targeted website or internet service with traffic, causing it to crash or become inaccessible to its users. The devices involved in the attack can be a network of compromised computers or devices that have been infected with malware, controlled by the attacker remotely, and programmed to send requests or data to the targeted server or website. The aim of DDoS attacks is usually to disrupt the target’s normal operations, steal sensitive data, or extort money.

Data Breaches

Data breaches are incidents where private, protected, or proprietary information is accessed, disclosed, or used by unauthorized individuals. This can include personal data, financial information, or other sensitive data.

Why is Cyber Insurance Important

Given that cyber events can lead to large reputational and monetary losses, cyber insurance is an important component of a complete and effective risk management strategy. Here’s why you should consider investing in this important coverage.

Financial Protection

Without cyber insurance, a cyberattack can lead to significant financial losses for your business. Legal fees, ransom payments, regulatory fines, and downtime are expenses that quickly add up. The right cyber insurance policy provides financial recourse that helps cover costs that you’d otherwise have to pay for yourself.

Regulatory Compliance

These days, more countries and states within the U.S. are implementing  rigorous data privacy and cybersecurity laws and regulations. Cyber insurance may help you remain compliant by providing notification cost coverage and resources for breach response.

Reputation Management

Cyber-attacks can cause damage to a business’s reputation, which can then impact revenue and client satisfaction. This is why cyber insurance typically includes public relations management support to handle the fallout, which helps rebuild trust with potential and existing clients.

If your company engages in any of the following activities during the regular course of business, cyber insurance is likely a wise investment:

• Communicates with customers online or via voice over internet protocol (VoIP)
• Accepts online payments
• Accepts in-store credit card transactions
• Stores personal information electronically (customers, employees, and business partners)
• Transfers documents electronically
• Relies heavily on IT systems for operations

How to Choose the Right Cyber Policy

Choosing a comprehensive cyber insurance policy requires careful consideration. These are some things you should take into account when you assess your cyber coverage.

Assess Your Risks

Identify the types of cyber threats your business faces and assess the potential financial impact of these threats. This can help you determine the proper coverage limits for your specific situation.

Understand Policy Coverage

Review the language of the policy to understand what is covered and what is excluded. Ensure the policy covers the most relevant threats to your business.

Evaluate Policy Limits

Zero in on your policy limits and ensure they are sufficient to cover potential losses. Consider factors such as the size of your business and the value of the data you manage.

Compare Policies

Obtain quotes from multiple insurance providers and compare the coverage and rates. Look for policies that offer comprehensive coverage at a competitive price.

Seek Professional Advice

Consult with a trustworthy, experiences cyber insurance advisor for their insights and recommendations targeted to your company’s unique needs. The Baldwin Group’s Cyber Center of Excellence is a great place to start!

Implementing Cybersecurity Best Practices

While cyber insurance offers financial protection, establishing cybersecurity best practices is also something businesses must consider to reduce the risk of cyber incidents. Here are some key practices to consider:

Employee Training

Your employees are your number one defense against cyber threats. Educate employees on cybersecurity best practices, such as how to identify phishing emails and avoid suspicious links. Implementing continual training and stimulating attacks can help your employees be better prepared to identify attacks so they don’t materialize into breaches.

Regular Updates

Ensure that all software and systems are frequently updated to protect against known vulnerabilities. Automate updates wherever possible to streamline the process.

Strong Passwords

Encourage the use of strong, unique passwords for all accounts. Adapt multi-factor authentication (MFA) as an extra layer of protection for your business systems.

Data Encryption

Encrypt sensitive data both in motion and at rest to prevent unauthorized access. Use strong encryption technologies to protect information.

Network Security

Protect your digital infrastructure by implementing firewalls, intrusion detection systems, and other network security measures. Have frequent security audits to identify and resolve issues.

These best practices can significantly improve your business’s cybersecurity posture and reduce the likelihood of mishaps.

The Role of Cyber Insurance in Incident Response

In the event of a cyber incident, having a robust incident response plan is essential. Cyber insurance plays an important role in this process. Here’s how:

Immediate Financial Support

Cyber insurance can provide prompt financial assistance to cover the costs of responding to a cyber incident. You’ll want to assess the policy language and ensure that it includes “pay on behalf of” language. If you have to pay for remediation efforts with your own funds and wait for reimbursement, this could be extremely inconvenient. “Pay on behalf of” language decreases the financial inconvenience of a cyber event.

Access to Experts

Many cyber insurance policies give access to cybersecurity professionals to support with incident response. These professionals can assist in the identification of the cause of the breach and put preventative measures in place to mitigate future incidents.

Breach Notification

Cyber insurance can cover the costs of notifying affected individuals and the relevant regulatory bodies about a data incident or breach. This ensures compliance with legal standards and promotes transparency.

Credit Monitoring

Providing credit monitoring services to affected individuals can help mitigate the impact of a data breach. Cyber insurance often covers the costs of these services.

By adding cyber insurance into your incident response plan, you can be nimbler and more effective in your response to cyber incidents.

Future Trends in Cyber Insurance

As the cybersecurity landscape evolves, so too will cyber insurers availability and terms for coverage. These trends are currently shaping the cyber insurance market:

Increased Demand

As cyber threats become more common, the demand for cyber insurance is projected to increase. Businesses of all sizes will seek protection to ensure they can avoid financial losses.

Advanced Analytics

Insurers are utilizing advanced analytics and artificial intelligence to assess risks more accurately. This facilitates more customized policies and better pricing.

Evolving Threat Vectors

Cyber insurance policies are evolving as a response to threat vectors, such as supply chain attacks and social engineering. Some insurers have responded by excluding these types of events.

Collaboration with Cybersecurity Firms

Insurers are collaborating with cybersecurity firms to provide integrated solutions that integrate insurance coverage with cybersecurity services. This collaborative approach enhances overall protection.

Staying informed about these trends can help businesses make strategic decisions about cyber insurance.

Cyber Insurance, in Action

No one wants to have to open a claim, but if a claims scenario does arise, this is when insurance proves to be valuable. Consider the Colonial Pipeline attack that made headlines just a few years ago.

Colonial Pipeline Ransomware Attack

In 2021, a major ransomware attack affected Colonial Pipeline, a leading petroleum pipeline operator in the United States. By leveraging their cyber insurance policy, the business was able to handle the attack’s financial costs. This included paying a $4.4 million ransom to the hackers and paying for the costs of forensic analysis, system repair, and business interruption.

Safeguard Your Business With Cyber Coverage

Cyber insurance is essential for protecting businesses from the financial impact of cyberattacks and data breaches. By understanding the importance of cyber insurance, assessing your risks, and selecting the right policy, you can safeguard your digital assets and uphold your reputation.

As you navigate the complex landscape of cyber risk, cybersecurity best practices, and the cyber insurance landscape, experts from The Baldwin Group’s Center of Excellence can help you remain informed on trends that impact your risk mitigation strategy so you can be resilient and capitalize on the benefits of technology for your business.

Our experts are ready to provide personalized support and guidance in your cyber insurance journey, so you gain confidence that your business is safeguarded.