Protecting Your Digital Assets: The Importance of Cyber Insurance

As a business owner, you have various options to insure your company’s assets. A common approach is to bundle coverage into a Business Owner’s Policy (BOP), which typically includes general liability, commercial property, and business auto insurance. Depending on your business operations, you might also consider additional coverage such as workers’ compensation, professional liability (errors and omissions), and cyber insurance. In this article, I will provide information about cyber insurance, a fast-paced and relatively new line of coverage.

As technology advances and becomes more sophisticated, it is increasingly important for your business to include cyber coverage as part of your insurance program. In this article, I will break down first-party and third-party cyber coverages, outline the benefits of cyber coverage, and share a few real-life scenarios where cyber coverage has protected businesses against data breaches and other cyber threats.

Businesses leverage a combination of software and hardware to boost operational efficiency. Software, being intangible, helps automate tasks and includes tools like email and video conferencing to enhance productivity. It also offers solutions for data storage and management, aiding teams in planning, tracking, and completing projects efficiently.

Hardware is tangible and encompasses computers and servers, mobile devices, network equipment, and security systems. Computers and servers run essential business software and store large amounts of data. Mobile devices like smartphones and tablets allow your workforce to work from anywhere. Network equipment ensures reliable access to fast internet, which is crucial for cloud-based applications and remote work. Security system hardware, including firewalls and cameras, protects business assets from physical and cyber threats.

Cyber insurance primarily protects intangible assets such as data, intellectual property, and digital operations. While cyber insurance focuses on software and intangible assets, it can also cover costs related to cyber incidents that might affect physical equipment. A cyber policy provides peace of mind and helps ensure your business is prepared to handle the financial and reputational impacts of a cyber incident. There are two main categories of cyber insurance: first-party and third-party cyber coverage.

First-party cyber coverage protects your business directly. It typically includes:

• Data Breach Response: Covers costs related to notifying affected individuals, credit monitoring services, and public relations efforts.
• Business Interruption: Compensates for lost income and additional expenses incurred while your business recovers from a cyber incident.
• Data Recovery: Covers the cost of restoring or recovering lost or damaged data.
• Cyber Extortion: Provides funds to respond to ransomware attacks, including paying ransoms if necessary.

First-party coverage helps ensure your business can effectively manage and recover from cyber incidents.

Third-Party coverage protects your business from claims made by others, such as customers or vendors who are affected by a cyber incident involving your business. It typically includes:

• Legal Defense: Covers legal fees and court costs if your business is sued due to a data breach or cyberattack.
• Settlements and Judgments: Pays for settlements or judgments if your business is found liable for damages.
• Regulatory Fines: Covers fines and penalties imposed by regulatory bodies due to non-compliance with data protection laws.

Third-party coverage helps ensure your business can manage the financial impact of claims and regulatory actions resulting from cyber incidents.

Both types of coverage are crucial for comprehensive protection against the financial and reputational risks associated with cyber incidents. Beyond first- and third-party cyber insurance, several other types of coverage should be considered to safeguard against cyber threats:

• Network Security coverage: Protects against claims arising from network security failures, such as malware spread or unauthorized access.
• Media coverage: Covers claims related to online content, including copyright infringement or defamation.
• Privacy coverage: Protects against claims related to the mishandling of personal information.

Many insurance carriers offer cyber insurance as an optional add-on to a Business Owners Policy (BOP). This optional cyber coverage typically requires minimal underwriting and provides limited coverages. For example, invoice manipulation and social engineering coverages are rarely included in BOP policies with added cyber coverage. Alternatively, businesses can purchase a separate cyber insurance policy, which allows for customized coverages and higher cyber limits. Whether your business decides to add cyber insurance to your business owner's policy or purchase a stand-alone cyber insurance policy there are several benefits which include:

• Financial Protection: It covers costs associated with data breaches and cyberattacks, including lost income, data recovery, and system repairs.
• Legal Support: It helps pay for attorney and court fees, settlements, and regulatory fines if your business faces legal action due to a cybersecurity incident.
• Customer Notification: It covers the costs of notifying customers affected by a data breach, which is often required by law.
• Crisis Management: It can include support for public relations efforts to manage the fallout from a cyber incident.
• Security Audits: Some policies offer structured security audits to help prevent future incidents.

Cyber-attacks occur daily across the globe, yet many believe it will never happen to them. A cyber-attack can happen simply by clicking a link on your mobile device. Phishing emails can trick individuals into revealing sensitive information or deploying malware to disrupt computer or network systems. Common cyber claim scenarios include:

• Ransomware Attack: A small business falls victim to a ransomware attack, where hackers encrypt the company’s data and demand a ransom for its release. A cyber insurance policy covers the ransom payment, data recovery costs, and business interruption losses.
• Phishing Scam: An employee clicks on a malicious link in a phishing email, leading to a data breach that exposes sensitive customer information. The policy covers the costs of notifying affected customers, credit monitoring services, and legal fees if customers sue for damages.
• Data Destruction: A hacker gains unauthorized access to the company’s network and maliciously deletes critical business data. A cyber insurance policy covers the costs of data recovery and any associated business interruption losses.
• Denial of Service (DoS) Attack: A DoS attack overwhelms the company’s website, causing it to go offline and resulting in lost sales. The policy covers the costs of mitigating the attack and compensates for the lost income during the downtime.
• Payment Card Scam: A restaurant receives a fraudulent email that installs malware on its system, compromising hundreds of thousands of credit card numbers. The policy covers forensic investigation, legal fees, and any fines or penalties from payment card industry assessments.

These scenarios illustrate the diverse range of cyber risks that small businesses face and the importance of having comprehensive cyber coverage.

Recognizing the vital role technology plays in day-to-day business operations is crucial. Everyone has a responsibility to safeguard business information. If you have doubts about an inbound information request, proceed with caution or avoid it altogether. The saying “we are only as strong as our weakest link” is particularly relevant, as cyber attackers often target the weakest link. To protect against cyber-attacks and avoid service interruptions, it is best practice to understand your software and implement robust technological controls, such as multi-factor authentication. Carrying cyber insurance is crucial for several reasons, but one of the best reasons is protection against financial losses due to cyberattacks.

I trust this article has offered you valuable insights into cyber insurance coverages, their benefits, and practical applications. Should you have any questions about your current cyber insurance or need more information on incorporating it into your business insurance package, please contact your trusted insurance agent for assistance.