Have you heard of cyber insurance?
Updated: Jan 30
Cyber insurance can't protect your organization from cyber crime, but it can keep your business on stable financial footing should a significant security event occur.
Technology, social media and transactions over the Internet play key roles in how most organizations conduct business and reach out to prospective customers today. Those vehicles also serve as gateways to cyber attacks. Whether launched by run-of-the-mill hackers, criminals, insiders or even nation states, cyber attacks are likely to occur and can cause moderate to severe losses for organizations large and small. As part of a risk management plan, organizations routinely must decide which risks to avoid, accept, control or transfer. Transferring risk is where cyber insurance comes into play.
What is cyber insurance?
A cyber insurance policy, also referred to as cyber risk insurance or cyber liability insurance coverage (CLIC), is designed to help an organization mitigate risk exposure by offsetting costs involved with recovery after a cyber-related security breach or similar event. With its roots in errors and omissions (E&O) insurance, cyber insurance began catching on in 2005, with the total value of premiums forecasted to reach $7.5 billion by 2020. According to PwC, about one-third of U.S. companies currently purchase some type of cyber insurance.
The numbers indicate that organizations are seeing a need for cyber insurance, but what does it cover? Cyber insurance typically covers expenses related to first parties as well as claims by third parties. Although there is no standard for underwriting these policies, the following are common reimbursable expenses:
A forensics investigation is necessary to determine what occurred, how to repair damage and how to prevent the same type of breach from occurring in the future. Investigations may involve the services of a third-party security firm, as well as coordination with law enforcement and the FBI.
A cyber insurance policy may include similar items that are covered by an errors & omissions policy (errors due to negligence and other reasons), as well as monetary losses experienced by network downtime, business interruption, data loss recovery and costs involved in managing a crisis, which may involve repairing reputation damage.
Privacy and notification:
This includes required data breach notifications to customers and other affected parties, which are mandated by law in many jurisdictions, and credit monitoring for customers whose information was or may have been breached.
Lawsuits and extortion:
This includes legal expenses associated with the release of confidential information and intellectual property, legal settlements and regulatory fines. This may also include the costs of cyber extortion, such as from ransomware.