The business world has begun to realize the importance of robust cybersecurity. It’s the top IT spending priority for businesses in 2022, with 69% of organizations increasing their security budgets. In the wake of this trend, cyber insurance has become an increasingly common purchase.
As of 2019, 41% of European and American firms had cyber coverage, with another 30% planning to adopt it in the following year. Of course, popularity alone isn’t enough to determine whether something is a worthwhile purchase. Here’s a deeper look at cyber liability insurance and why your organization may need it.
What Is Cybersecurity Insurance?
Cybersecurity insurance acts like any other type of coverage, but it protects against losses from cyberattacks. That coverage comes in several different forms, including:
- First-party insurance
- Third-party liability coverage
- Cyber extortion insurance
- Software liability insurance
Plans can provide coverage just one of these areas or any combination of the four. As the market matures, new options and coverage types will likely emerge as well.
What Does Cyber Insurance Cover?
What cyber insurance covers depends on your specific plan. Generally speaking, it reimburses companies for their data recovery costs after a breach. That often includes helping pay for security fixes like identity theft protection, as well as reimbursement for the loss of income that comes with a business interruption.
Some policies even cover physical damage that could result from a cyberattack breaking devices or rendering them unusable. Many also include third-party liability coverage like helping pay for legal fees that could arise if a data breach affects partners, clients, or employees.
Cyber insurance coverage can also vary by the specific type of attack in question. Cyber liability coverage typically covers data breaches from hacking, social engineering, or any other cyberattack that exposes sensitive information. Network security often covers network failures like business email compromise, malware, and cyber extortion.
Keep in mind that not all policies cover all types of attacks. One study found that 20% of IT managers have cyber insurance that doesn’t cover ransomware attacks.
Also read: Top Vulnerability Management Tools & Software 2022
How Much Does Cyber Insurance Cost?
Like most other types of insurance, how much you pay for cyber coverage depends on your vulnerability. The more vulnerable you are to cyberattacks—and the more you have to lose should one afflict your organization—the more you can expect to pay for your insurance premium.
Insurers determine your vulnerability based on several factors. Your industry and the size of your company are two crucial considerations, as cybercriminals favor some industries over others, and larger companies are typically more vulnerable to social engineering because they have more authorized users. The amount of data you carry and how sensitive it is are also important factors.
On average, cyber insurance costs range between $500 and $5,000 annually. That considerable gap highlights how much various factors can influence your premiums. While many of those considerations are outside your control, implementing more robust security will help keep costs down.
Advantages of Cybersecurity Insurance
Cybersecurity insurance has many promising advantages. Most notably, data breaches are expensive, and this coverage can help mitigate those costs. Breaches cost $4.24 million on average, enough that many small businesses never recover from them. Coverage will pay for much of that, ensuring a breach doesn’t spell the end for your company.
Since data often changes ownership multiple times, companies often put other people’s sensitive information at risk, often without realizing it. Cyber liability coverage will help cover legal repercussions that could come from these third-party breaches. Whether a partner exposes your data or you expose another’s, insurance will help.
Some insurance policies cover remediation strategies, which can help businesses become more secure. If you suffer a cyberattack, your insurer may help pay for forensic work to uncover the source of the breach and the cost of any extra security measures you implement afterward. As a result, you can make your company more secure while minimizing related expenses.
This support can also help companies recover from cyberattacks faster. Businesses can recover their lost systems in less time and resume business, minimizing lost productivity.
Also read: Best IAM Tools & Solutions 2022: Identity Access Management Software
Potential Cyber Insurance Downsides
You should also be aware of cyber insurance’s potential drawbacks. The most significant disadvantage of this coverage is its cost. As companies collect more data and cybercrime becomes more common, insurance premiums will likely rise. Some insurers raised their rates by as much as 25% in 2020 as claims surged.
Cybersecurity insurance may also not cover everything businesses want it to. While some policies include coverage for physical damage, many don’t—and many likewise don’t cover loss of intellectual property. Companies will have to buy cyber insurance alongside other types of coverage to get full protection.
Since this market is relatively new, policy terms and conditions may be confusing. There’s a lot of variation within the industry, so it can be difficult to understand what a policy offers and what its limits are.
Should You Get Cyber Liability Insurance?
Despite these downsides, cyber insurance is a good idea for most companies. While premiums can be high, the cost of a cyberattack without insurance is far higher. Studies show that 60% of small businesses close within six months of a data breach because they can’t manage the financial consequences.
Cybercrime has also become far too common to assume you’ll never be the victim of an attack. There is a hacker attack every 39 seconds, and 54% of companies have experienced an attack in the last year. Those figures are even higher in some industries, with malware infecting more than 75% of the healthcare industry last year.
Small companies in low-risk industries may be able to forgo cybersecurity insurance safely. However, that’s only if they have robust security measures in place, as no business is entirely safe in today’s landscape. It may be a good idea to get coverage anyway, as it won’t cost as much in a low-risk sector, and cybercrime is growing.
Cyber insurance is crucial for organizations in frequently targeted sectors like healthcare, education, manufacturing, and finance. Similarly, if your business holds or manages a lot of data or high-value data, you should heavily consider cybersecurity coverage. These situations make you a far more likely target and make successful attacks far more damaging without insurance.
Cybersecurity Insurance is Becoming Increasingly Crucial
Cyber insurance is not a replacement for robust cybersecurity measures, but it provides a safety net should a breach occur. Considering how common cyberattacks are and how damaging they can be, that protection is essential for companies in high-risk industries or with valuable data.
While cyber coverage does carry some drawbacks, the benefits outweigh the disadvantages for most companies. Getting sufficient coverage can provide some peace of mind and minimize the otherwise drastic costs of an attack.
Read next: Containing Cyberattacks in the Age of IoT