As businesses’ reliance on technology has increased, so has the risk of cyber attacks. Accordingly, insurance coverages have been forced to change.
While cyber policies once provided basic coverages such as liability of a third-party breach, they today provide comprehensive coverage for a massive range of claims. The term “cyber liability” doesn’t carry the same meaning it once did. In the past companies thought of this as a liability product,but today’s products are broad and robust, see the difference in first-party vs third-party cyber insurance.
Understanding Terms: Cyber Liability and Cyber Insurance
To understand the difference between the terms “cyber liability” and “cyber insurance,” we must understand the difference between first-party and third-party coverages.
What is First-Party Coverage?
A First-Party Coverage claim is one the policyholder brings against their own policy.
For example: A policyholder suffers a data breach and must outsource an IT forensic team to locate the breach’s source, re-secure their network, and confirm what information was potentially compromised. First-party coverage reimburses the policyholder for these kinds of out-of-pocket expenses, minus their deductible.
What is Third-Party Coverage?
A Third-Party Coverage claim is one brought by someone other than the policyholder, for damages for which the policyholder is legally liable (hence the term “cyber liability”).
For example: A policyholder suffers a data breach in which a hacker gains access to their customer’s private information. The policyholder will likely be held liable for this breach of personally identifiable information (PII), and may face breach of contract, negligent protection of data, and more.
While cyber liability coverages were once the only option available, they are now only part of the coverages available under a cyber insurance policy.
What is Cyber Insurance Today?
The first cyber policies are nothing like the comprehensive coverages available today. Policies now include both first-party and third-party cyber insurance coverages, as well as a few additional elements.
First-Party Cyber Coverages
These cover out-of-pocket costs the policyholder may face as a result of the breach. First-party coverages have grown, as over half of the claims brought forward under a cyber insurance policy are first-party claims. Examples include:
- IT Forensic Costs
This coverage covers the cost of determining what information may have been breached or how a hacker gained unauthorized access to sensitive data.
- Notification Costs
This coverage covers the cost of notifying individuals, businesses, regulators, and running a call center related to the notification. In many cases, notification is legally mandated and must be performed within a specific time frame.
- Credit Protection Costs
This coverage covers the cost of providing credit monitoring services to affected parties whose credit scores may suffer.
- Crisis Management Costs
This coverage covers the cost of potential media liability, including the cost of hiring a public relations firm.
- Crime and Social Engineering
This coverage covers the cost of a potential involuntary parting of funds (when a stolen username and password are used to direct funds out of an account).
Third-Party Cyber Coverages
Cyber liability insurance covers potential claims brought against the policyholder by third parties affected by the cyber extortion or attack. Examples include:
- Claims related to the breach of Personally Identifiable Information (PII):
- Credit card numbers
- Social security numbers
- Bank account information
- Personal health information
- Sensitive corporate information
- Other claims related to:
- Breach of contract
- Negligent protection of data
- Network security breaches
- Transmission of software viruses
- Denial of service attacks
Additional Cyber Coverages
Benefits of a cyber insurance policy can go beyond first-party and third-party coverages, and include:
- Multimedia coverage, such as online advertising, intellectual property, copyright and trademark infringement, and libel or defamation claims.
- Cyber extortion coverage for a potential ransomware demand, which cyber hackers may make while holding a policyholder’s network or data hostage until their demands are met.
- Cyber business interruption for companies who rely heavily on the internet or their network for revenue.
Why Cyber Insurance Is Important
As cyber attacks continue to evolve and hackers discover new ways to infiltrate important network systems and databases, it’s becoming harder to protect against these attacks.
In addition, as our reliance on technology increases, the risks we face should an attack occur have become more serious. Now, a medical device implanted in a heart, the driverless vehicle on the road, and the security camera in a child’s bedroom can all be compromised.
More companies are taking control of their cyber risk by purchasing a cyber insurance policy.
While IT security and risk prevention measures are extremely important, the chances of a cyber attack successfully infiltrating a business’s network are simply too high not to have the right coverages in place.
How ProWriters Can Help
ProWriters offers more than 20 years’ experience in cyber insurance.
With the best service available in the industry, we make the process of buying and selling insurance the easiest it’s ever been. Our Cyber IQ Comparative Rate Portal lets you quote and compare policies from multiple carriers in a matter of minutes.
In addition, ProWriters offers a number of free resources for agents and brokers, including our latest eBook, Cyber Exposure: What’s the Real Cost?. Learn more about the risks your clients may face and how best to protect them with a cyber insurance policy.
To get started helping your clients understand first-party vs. third-party cyber insurance and why they need both, contact us online or call to speak with a ProWriters expert at 484-321-2335.