Cyber Liability Insurance: What It Is and Why Your Business Might Need It

No matter the size, shape, or scope of your company, cybercrime is a nefarious reality of modern business. Between ransomware attacks targeting hospitals and data breaches at credit companies, virtually no industry remains immune to threats posed by hackers, data thieves, and other malicious actors.

These risks can be felt by any organization around the world and are particularly dangerous for small businesses. As noted by a survey conducted by the U.S. Small Business Administration, 88% of small business owners feel vulnerable to online attacks — and for good reason. According to the FBI’s 2022 Internet Crime Report, cybercrime accounted for $10.3 billion in losses.

From phishing scams to ransomware, cybercrime can take many different forms and leave your business crippled from the sheer loss of data, trust, and integrity. And with the pervasive nature of zero-day attacks, which are often able to evade even the most effective online defenses, the best-laid IT strategies may still not be enough to mitigate the effects of a devastating attack.

Cyber liability insurance has become an increasingly important level of protection for small and medium-sized businesses. By defending a company against interrupted business or stolen data in the event of a hacking event or data theft, organizations can help ensure that they’ll be able to withstand recovery efforts and potential legal actions.

What is cyber liability insurance?

Cyber liability insurance, also known as cybersecurity insurance and cyber risk insurance is a specialty insurance product designed to protect businesses in the event of an attack on IT infrastructure, including the destruction of data, denial of service attacks, or extortion. As a policy that’s typically not included with standard commercial liability insurance, cyber liability insurance can greatly improve the ability of a company to recover from the aftermath of an online attack.

Coverage for cyber liability insurance varies based on the policy but can cover a wide range of attack-related scenarios, including:

  • Data breaches, which can result from employee theft, misplaced equipment, or hacking.
  • Business interruption, which can be the result of a denial-of-service attack or from having to keep your business closed while restoring equipment.
  • Extortion, like that seen in a ransomware attack.
  • Public relations issues, such as working to restore a company’s reputation.
  • Legal issues, such as fines from government organizations or enacting credit monitoring services for affected customers.

Any of these issues can individually cost a small business a serious amount of money, and in the case of a significant attack, any and all of these scenarios can come true, translating to serious costs and potential legal liability.

That’s not to say cyber liability insurance covers every possible attack-related scenario — property damage, bodily harm, and terrorism-related cyber activities can often be excluded from the typical cyber liability policy. But for a small business without enterprise-level IT resources, cyber liability insurance can still serve as a serious layer of protection against significant attacks.

What is NOT covered by cyber liability insurance?

It’s important to review your cyber risk insurance policy for any exclusions or grey areas.  Here are some examples:

  • Intentional acts including fraud, criminal conduct or wrongful acts done by you or your employees.
  • Prior acts or knowledge including any claims you had knowledge of prior to the start date of your coverage.
  • Subsidiary outside of your control including an incident that happens at a subsidiary for which you don’t have majority ownership or management control.
  • Losses caused by the failure to fix known vulnerabilities.

Why does your business need cyber liability insurance?

If your company handles sensitive customer information, runs mission-critical IT equipment, or simply can’t afford any interruption of service, cyber liability insurance is a business imperative. Consider coverage if you store data such as customer names and addresses, Social Security numbers, medical records, and financial information such as credit card information.  Not only can an online attack grind work to a halt at a moment’s notice, but it can also leave companies exposed to significant legal jeopardy.

Benefits of Cybersecurity Policies

  • Lowers the direct and indirect costs associated with a Cyberattack
  • Avoid legal fines and penalties
  • Maintain employee and customer trust and support
  • Have time to regain customer faith

By obtaining cyber liability coverage for your business, you’ll be able to better endure the costs and headaches associated with a major attack and help ensure that the business gets back to normal as quickly as possible.

How much cyber liability insurance do I need?

The amount of cyber liability coverage you need depends on your company’s specific risk. It’s a good idea to talk with an insurance agent to determine the appropriate amount to meet your business needs. Here are some things to consider:

  • Does your company collect, store, send or receive personally identifiable information or personal health information?
  • Is your company in an industry with rules about customer information, such as education, finance or healthcare?

Meeting the Changing Cybersecurity Insurance Requirements

Cyber insurance policies have had massive premium increases, and now there are more stringent and costly security requirements. Many now require the client to have the following procedures in place:

  • Deploy and report on antivirus software
  • Install firewalls
  • Conduct regular system updates
  • Deploy data and system recovery software
  • Execute regular data backups to external media or secure cloud services.
  • Utilize a system that manages user access and permission policies, ensure multifactor authentication
  • Have an incident response plan
  • Perform regular employee cyber awareness training

DWD Technology Group helps companies evaluate and implement essential IT management solutions. Drawing on deep experience in offering end-to-end IT and cybersecurity solutions, our technology experts can help any small or medium-sized business find the right online security solutions to mitigate the risk of dangerous attacks. For a free cybersecurity assessment, contact us today!

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