What Does Cyber Insurance Cover — And Why Do You Need It?

A 2021 report from IBM Security indicates that the cost of a single data breach reached $4.24 million that year, an increase from $3.86 million over the previous year. Coupled with all the high-profile cyber attacks impacting large corporations you see in the news, it’s no wonder why companies everywhere are scrambling to protect themselves from online threats.

But no matter what preparations to internal policy and improvements in IT infrastructure a business makes, cybersecurity will always be a looming threat. That’s why we’re seeing an uptick in adoption rates for insurance against cyber attacks.

So, why do companies need cyber insurance today? And what does cyber insurance cover? In this post, we’re going to cover all of that and more.

What Does Cyber Insurance Cover — And Why Do You Need It?

The Role of Insurance in Cybersecurity

Businesses are turning to varying cybersecurity solutions to fight against this global threat, and among their new policies is the use of cyber insurance coverages. Insurance policies already exist for other aspects of business risk like natural disasters and employee healthcare, so it’s only natural for cybersecurity to be covered as well.

Cyber risk insurance has become a major focal point in recent years for public policymakers according to the Insurance Information Institute. Part of the reason is that security incidents have become more well-known in recent years, with threats becoming more numerous and difficult to understand.

At the same time, businesses are working with larger networks than ever before with all the applications, devices, sensitive data, and users involved. The result is a much larger attack surface that increases the chance of data compromise or loss. Not only are security incidents more likely, but they will do more financial and reputational damage when they do occur.

Cybersecurity insurance, in other words, is no longer a niche tool for high-risk businesses; it’s an essential consideration for companies across almost all industries and sizes. The premiums are simply worth not having to shoulder the entire cost later.

What Is Cyber Insurance Coverage?

You might have heard cyber insurance referred to as cyber liability coverage or data breach insurance. Call it what you will, but it’s become increasingly necessary as more and more businesses are exposed to digital risks online from phishing attacks to malware.

In the same vein as insurance for natural disasters or vehicle collisions, cyber insurance recuperates some of the financial losses a company takes following a cybersecurity incident.

What Are the Types of Cyber Coverage?

Client businesses have a choice in how much supplementary coverage they want in addition to the basic level of coverage offered by most cyber insurance policies. It’s for this reason why understanding cyber insurance is a necessity for corporate decision-makers when it comes to adopting these policies.

Cyber insurance comes in many forms to protect an organization from operational damage, information theft, and privacy concerns.

  • Errors and omissions: In the aftermath of a cybersecurity attack, incident response teams need to work hard to get everything back up and running. Disruptions to a business’s ability to deliver products and services to clients in the meantime are inevitable. Written shorthand as E&O, “errors and omissions” protect a company from claims regarding unfulfilled contractual obligations and performance failures as a result of an attack.
  • Media liability: While it might seem like a strange inclusion, cyber insurance sometimes covers intellectual property violations. Whenever any physical or online content (social media posts included) is infringed upon, cyber insurance will protect the business from intellectual property infringement.
  • Network interruptions: In the same vein as E&O, cybersecurity incidents that cause disruptions in the business network can greatly impact its ability to conduct daily operations. This type of insurance covers repair expenses and lost profits during this time.
  • Network security: Holes in the cybersecurity posture of a corporate network manifest in the form of phishing attacks, malware, ransomware, and various other incidents. Basic cyber insurance covers network security problems by covering the costs of restoring data, performing IT forensics, and notifying stakeholders of the incident.
  • Privacy liability: Corporations handle the personal information of employees and customers regularly, and data breaches often target this type of data. Whenever such an incident occurs, privacy liability coverage protects you from class action litigation, regulatory investigations, and settlements with regards to such breaches.

Organizations choose what coverage to use depending on their own specific coverage needs. The larger the business and the more coverage needed, the higher the premium.

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What’s Usually Covered?

Cyber insurance can include first-party coverage, which compensates the client business itself for losses incurred during an incident, and third-party coverage, which helps pay customers and business partners who might also be impacted. Any lawsuits you might receive, for instance, would be partly paid for by third-party coverage.

Beyond that distinction, coverage often extends to:

  • Recuperating losses coming from the incident directly
  • Notifying impacted customers (as required by law in most cases)
  • Steps to remediate the damage, including investigation, legal services, and reimbursing affected stakeholders
  • Recovering lost, stolen, or otherwise compromised data
  • Repairs to internal networks and systems

In a ransomware attack, the attacker will hold internal data or systems hostage while demanding a fee for release. Paying that fee can also be covered under cyber insurance- although paying a ransomware fee may NOT be the correct course of action and needs much clarification. {Having isolated back-up systems in place is certainly a better alternative.}

Limitations of Cyber Insurance

It’s also worth noting that, while policyholders are covered in many areas, cyber insurance doesn’t cover everything. For instance, any expenditures made to improve internal security later typically aren’t covered. In addition, fundamental problems in the way a client approaches cybersecurity will have implications on the type of coverage it can receive.

  • Human error: A cyberattack due to human error by internal staff, which includes insider attacks committed by employees, is often excluded from coverage.
  • Poor security posture: An insurance company won’t be as sympathetic when the client refuses to implement proper and effective security policies in the first place. An unwillingness to address known vulnerabilities promptly is another red flag.
  • Past incidents: Likewise, a history of prior breaches and attacks could result in higher premiums or even denied coverage.

The general idea is that security breaches and incidents due to negligence or human error are usually not included in coverage plans. And any improvements to internal applications and networks, though encouraged, are usually not covered under the policy.

Cyber Insurance Must Complement Cybersecurity

Another vital takeaway is that cyber insurance is not a replacement for proper cybersecurity risk management. Taking action against cyber risks and putting yourself in an ideal position to obtain cyber insurance involves a few steps:

  • A risk assessment to determine where cyber risks reside in the organization and what priorities should be set in order to address them. A security audit is recommended at this stage.
  • Corrective actions and internal controls directly address those risks. IT departments must consider implementing antivirus and anti-malware tools as well as education for employees to help them avoid phishing attacks and protect their own data at work.
  • Cyber insurance can be considered at the end as an additional layer of protection in case an attack seeps through the cracks.

Policyholders are expected to uphold their end of the bargain by working to prevent cyberattacks in the first place. In fact, insurance vendors often analyze their potential clients first before issuing policies and deciding on premiums.

Get Eyes on Your Cybersecurity Posture with CentralEyes

If you’re an insurance agency specializing in cyber insurance, a large part of your job is analyzing the current security posture of the client businesses you’re working with. You can use your findings to determine suitable premiums and contract terms.

That’s why CentralEyes enables you to measure cybersecurity risks while quantifying them for easy analysis. Book a demo today and see how easy Centraleyes makes it for you to gain a 360-degree view of risk.

Start Getting Value With
Centraleyes for Free

See for yourself how the Centraleyes platform exceeds anything an old GRC
system does and eliminates the need for manual processes and spreadsheets
to give you immediate value and run a full risk assessment in less than 30 days

Start building your Cyber Insurance Program
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