What Is Cybersecurity Insurance?
You’ve heard of car insurance, home insurance, boat insurance, motorcycle insurance, RV insurance, and even ATV insurance. But have you heard about cybersecurity insurance? As I am sure you are well aware, we are living in a roaring digital age, one that is slowly but surely taking over every aspect of our lives. (Just try finding a modern public restroom that doesn’t offer fully automated facilities.) Though technology is an amazing asset to most businesses, it also has a dark side, especially when it comes to the online world.
We’ve all been horrified by the big time corporation data breaches. Who could forget the fallout from the massive T.J. Maxx, Target, and Equifax hacks (to name, literally, a few)? But while many big-name chains have been successfully hacked, a Data Breach Investigation Report released by Verizon found that 71 percent of cyber attacks are directed at small businesses because they do not have adequate protection. If you are a small business owner who has little or no security measures in place, these statistics are not in your favor.
If this article is already hitting a little too close to home, then it might be time to re-evaluate your security measures. First, implementing a solid security system that sufficiently protects your business is paramount to making yourself a less desirable target. Second, it is important to understand that even if you have the most secure protocols and procedures, there is always a chance that someone will be able to hack into your system. If that day ever comes, you want to be prepared with a backup plan, and that plan should include cybersecurity insurance.
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What Is Cybersecurity Insurance?
The concept of protecting ourselves from the aftermath of cyber attacks is still so new that the industry itself has yet to decide on a name, let alone a universal spelling for the service. Cybersecurity insurance (also referred to as cyber-liability or data-breach liability insurance) was introduced to the market over a decade ago. But few businesses have adopted, let alone heard about this vital form of protection.
The United States Department of Homeland Security says that cybersecurity is “designed to mitigate losses from a variety of cyber incidents, including data breaches, business interruption, and network damage.” If your company ever does face the horrible consequences of a data breach, you will be more than happy that you purchased cybersecurity insurance to help you repair and clean up the damage.
Understanding First Party Coverage VS Third Party Coverage
To understand cybersecurity insurance, you need to know the difference between first-party coverage and third-party coverage. Let’s examine the two different types of coverage more in-depth. According to Insuropedia, this is how the two stack up:
- First-Party Coverage: This insurance covers the assets of your business and can include protection from the following damages:
- Cyber Exhortation: In such a scenario, a third party threatens to damage or release data if they are not given a ransom amount.
- Customer Notification Expenses: In cases when the customer personal data is compromised, there is a legal or regulatory requirement to notify them about the privacy breach.
- Reputational Damage: Breach of data results in loss of intellectual property or customers which cause reputational damage to the organization.
- Theft Of Money Or Digital Assets: The theft in such a scenario can be of equipment or electronic theft.
- Loss Or Damage: Loss of or damage to data or software programs which are the digital assets of an organization.
- Downtime: Network downtime causing severe business interruption.
- Third-Party Coverage: This insurance provides your business with protection from third-party related crimes.
- Costs: Security and privacy breaches, and the investigation, defense costs and civil damages associated with the third-party.
- Multi-Media Liability: It covers investigation costs, defense costs, and civil damages. Such cost and damages arise from defamation, breach of privacy. Negligence in the publication of information in electronic or print media is also covered in this.
- Loss Of Third Party Data: This includes payment of compensation to customers for denial of access and the failure of software or systems.
To boil it down into simple terms:
“First-party coverage applies to direct costs for responding to a privacy breach or security failure, and third-party coverage applies when people sue or make claims against you, or regulators demand information from you.”
What Are The Different Types Of Cyber Insurance?
As I’ve already stated a few times in this article, cybersecurity insurance is still a rapidly changing industry. No two businesses are going to have the same needs when it comes to purchasing their insurance policies, so it is highly profitable to do your homework and really shop around before you dot any i’s or cross any t’s. Below is a list of the main types of cybersecurity insurance currently being offered in the industry:
- Information Security & Privacy Liability Coverage: This type of coverage covers first-party costs and third-party liabilities.
- Network Security: This type of insurance covers first-party costs and third-party liabilities.
- Media Liability: This insurance only covers first parties.
- Errors & Omissions: This insurance only covers first parties.
Data breaches are now as certain as death and taxes. (Joy.) If a business is lacking cybersecurity measures, they are like sitting ducks for the plethora of online keyboard-wielding creeps. If you need a place to get started, here is an article detailing Point Of Sale Precautions Every Business Owner Should Take.
Once you’ve created and implemented a solid security plan, make sure you keep it up to date. Finally, as I hope this article has stressed, seriously consider taking out cybersecurity insurance. In the case of data breaches, it is far better if you are proactive rather than having to be solely reactive.
I will leave you with this sobering statistic: After experiencing a cybersecurity attack, 60 percent of small businesses go out of business within six months.
Don’t throw the time, effort, blood, sweat, and tears you’ve poured into your business into the trash because you didn’t prepare for what is increasingly becoming an inevitable threat.