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The Rising Importance of Cyber Insurance Policies

By: Dataprise

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With the growth of the remote and hybrid workforce, businesses are increasingly reliant on digital technologies. Forbes reported that by 2025, an estimated 32.6 million Americans will work remotely. What’s more, these technologies are becoming more sophisticated and advanced to accommodate different work models. However, with more gaps in technology than ever before, cybersecurity has emerged as a critical concern for IT leaders.

As cyber threats evolve, organizations are realizing the importance of adopting robust defense mechanisms. One such mechanism gaining significant traction is Cyber Insurance. Today, our team of experts explores what is cyber insurance, types of cyber insurance policies and why cyber insurance goes hand-in-hand with business resiliency.

Understanding Cyber Insurance

First, let’s better understand what Cyber Insurance is. These policies are designed to help organizations mitigate the risk of cyber-related security breaches and associated losses. Cyber insurance can cover various things – such as:

  • Financial losses resulting from data breaches
  • Network damage
  • Business interruption
  • And more

Additionally, certain policies can provide support for recovery efforts, including public relations, legal fees, and identity protection services for affected customers.

Why Cyber Insurance Matters

1. Increasing Cyber Threats

In 2023, threats to a business’ continuity come in all forms. Verizon’s 2023 Data Breach Investigation Report shared that the top 3 primary ways in which attackers access an organization are stolen credentials, phishing, and exploitation of vulnerabilities in ransomware attacks. to data breaches and phishing scams, businesses face a wide range of cyber threats. IBM also shared that the cost of a ransomware attack in 2021 averaged to be $4.5 million. In this day and age, the way criminals are targeting organizations is constantly shifting.

2. Regulatory Compliance

As cyber threats increase, governments are acting worldwide to implement stricter regulations, ensuring companies protect consumer data. Non-compliance can result in hefty fines and penalties, coupled with reputational damage. In 2023, damage to your organization’s reputation could end up being a bigger cost than accrued non-compliance fines.

3. Financial Protection

A significant cyber-attack can lead to enormous financial losses as well as organizational downtime. These losses might stem from direct theft, the cost of interruption to business operations, or the expenses related to notifying customers and managing the fallout from the breach. Cyber insurance policies can help manage these financial risks by freezing your internal environment once reported.

Choosing the Right Cyber Insurance Policy

Choosing the right cyber insurance policy involves assessing an organization’s specific needs and risks. Factors to consider include the type of data the company handles, the security measures already in place, and the potential impact of a cyber-attack on operations. We have partnered with Risk Cooperative to create a minimum requirements checklist. We encourage you to download it and have an internal conversation with your team.

It’s also crucial to understand what a policy covers. For instance, some policies might cover only first-party damages (the insured party), while others might cover third-party damages (affected clients or partners).

The Difference Between Cyber Insurance vs. Liability Insurance

There are significant distinctions between general liability insurance and cyber insurance that companies of all sizes, with any type of digital presence, must be cognizant of. It is imperative to fully understand the extent of coverage offered by your insurance and identify potential areas of vulnerability.

Business Liability Insurance: Protects businesses against claims for damages or injuries caused to third parties. This could include bodily injury, personal injury, property damage, or advertising injury. Business liability insurance policies are often designed to provide coverage for risks that are common in a particular industry or profession.

Cyber Insurance: Covers the losses caused by cyber-attacks, data breaches, and other cyber incidents that can compromise an organization’s digital assets. The coverage may include the costs associated with incident response and investigation, legal expenses, notification and credit monitoring, business interruption, and the restoration of data or systems.

The Types of Cyber Insurance

The types of cyber coverage available include:

  • Security and Privacy Liability Coverage (Including Employee Privacy)
  • Security Breach Response Coverage
  • Security Breach Assessment
  • Multimedia Liability
  • Privacy Regulatory Claims Coverage
  • PCI-DSS Assessment Coverage
  • Cyber Extortion Coverage
  • Business Income Interruption
  • Reputational Harm Loss
  • Digital Asset Restoration Costs
  • Technology Errors & Omissions

It is also important to recognize that while there are many cyber insurance products on the market today, not all provide equal levels of protection. There are notable differences between Bundled Products, which can be a source of hidden gaps with increased risks, and Stand-Alone Cyber Policies, which provide the greatest protection.

Cyber Insurance Policies Bundled Standalone
Cyber Insurance Policies Bundled Standalone

The Bottom Line

In today’s digital age, cyber insurance is no longer a luxury but a necessity. As organizations continue to embrace digital transformation, the need for comprehensive cyber risk management strategies, including cyber insurance, will only grow. Next week, we are teaming up with Risk Cooperative again to explore the topic of cyber insurance more. We encourage you to register and be part of the discussion.

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