What is cyber insurance and why do you need it? It’s a question all brokers should be able to explain to their clients.
Many business people mistakenly think their general liability insurance will protect them in the event of a cyber attack. In most cases, it won’t, and the losses can be devastating—which is why having cyber insurance coverage is so important.
It’s vital for brokers to understand cyber risk, a complex type of exposure, and convey risks and solutions to clients. ProWriters™ experts can help you understand risks specific to your industry, your business, your technology usage, and more. Understanding risk is step one in protecting your business.
According to Thirdway.org, “There are approximately 300,000 reported malicious cyber incidents per year. Attacks cost the U.S. economy anywhere from $57 billion to $109 billion annually and these costs are increasing.”
Cyber insurance may cover something as calculated and criminal as ransomware attacking a business, or as simple as a breach resulting from personal data exposure from a lost mobile phone. Cyber insurance policies are critical because they provide coverage specific to cybercrime losses.
What Does Cyber Insurance Cover?
Cyber liability insurance is a type of insurance designed to cover expenses, business losses, business interruption, and fines and penalties associated with a data breach. Cyber liability insurance also protects businesses in the event of a ransomware attack. It is written to cover losses that other policies will not cover.
Who Needs Cyber Insurance?
The short answer: Everyone. Every business that uses electronic communication and/or the internet should protect their business from the fallout of a cyber event. Cyber events can be quite costly and often harm a company’s brand and reputation.
Cyber Risk is Real
Let’s face it: almost everyone uses some kind of cyber technology every day. In an era when email is used for everything, and transactions often occur online, the world of cyber presents a great opportunity for criminals.
According to the Insurance Information Institute, “Insurance experts now consider the risk of cyber liability losses to exceed the risk of fraud or theft. In this tumultuous environment, your business can take several steps to limit risks, including purchasing cyber liability insurance.”
Which Clients Are the Most Cyber-Vulnerable?
Even with the best safeguards in place, cyber attacks will happen. Cyber insurance can help mitigate damages and potentially save millions of dollars for a business. While cyber insurance is necessary for everyone, four sectors are most affected by cyber attacks:
- Businesses that take credit cards or electronic payments
- Medical and healthcare facilities
- Banking/credit/financial institutions
- Businesses providing professional services
These sectors need to pay special attention to cyber insurance. If you broker for clients in any of these sectors, you should be talking to them about their risks and how cyber insurance can help. Help them understand that cyber insurance is a specific line intended to protect both businesses and individual users from the costly losses associated with a breach.
Even if your clients do not belong to these sectors, they still face the risks of ransomware, business interruption, and digital asset damage.
What Does Cyber Insurance Protect Against?
Even small businesses are at risk. Consider this scenario:
Emma and Ally had everything they needed to launch their online fashion business. They had sufficient funding, a great business plan, and unique products. Of course, they purchased insurance: product liability, general liability, and a business owners’ policy. But they didn’t know they needed a cyber insurance policy (and the cyber risk management expertise such as what ProWriters offers). That mistake almost cost Emma and Ally their business, financial stability, and their dreams.
Just shy of a year after their launch, a hacker breached their website and exposed their company’s financial data from thousands of customers. Emily and Ally turned to their insurance company to file a claim. They anticipated compensation for business interruption losses, rebuilding their cyber infrastructure, and lawsuits from angry customers. Sadly, they were not covered by their general liability coverage or even their business owners’ policy.
They’re not alone. Many business owners have received the same devastating news. They think their business liability (or other policies) cover losses and protect their businesses from a cyber attack, ransomware attack, or another type of online security breach. But, the reality is, they most likely do not. There’s an insurance gap, and too many businesses are slipping through.
Mind the (Insurance) Gap
Smart companies are evaluating risks across their enterprises and taking measures to safeguard their future. These efforts include conducting cyber risk assessment, training employees through user education, creating ransomware-attack procedures, and using sophisticated programs to protect their data. And of course, purchasing cyber insurance coverage is very important.