With digital technologies now playing a crucial role in business operations, the need to protect those assets is greater than ever. Online transactions and other digital platforms are all potential gateways for cyberattacks conducted by financially motivated hackers.
Such threats highlight the need for a comprehensive risk-mitigation plan in which business leaders decide which risks to accept, avoid, control, or transfer.
Cybersecurity insurance is where companies transfer risk to a third party as part of their last-resort plan for recovering from an incident. Cybersecurity insurance originally started in the form of errors and omissions insurance, which protects companies against claims of negligent actions or inadequate standards of work.
It became a widespread option around a decade ago as a new wave of cyberthreats started proliferating around the rise of cloud computing and mobile technologies. Although only a third of US companies have some form of cybersecurity coverage, the number is growing rapidly.
What does cybersecurity insurance cover?
Since cybersecurity insurance is a relatively new concept, there are still no standardized ways of underwriting these policies. As such, what a policy covers depends heavily on the insurance company. Here are some of the most common expenses that should be covered:
- Business losses: These include a similar set of items that would be covered by a conventional errors and omissions insurance policy. But there are many more direct business costs of a cyber incident, such as unscheduled network downtime, data recovery fees and crisis management costs. While things like reputational damage are much harder to quantify, cybersecurity insurance should go a long way toward mitigating the associated monetary losses.
- Investigation costs: These are forensic investigations carried out to determine the cause of the incident and the effects it has on the business and its customers. This stage should also help determine how to repair the damage and prevent a similar incident from happening again. In many cases, these investigations must be coordinated with law enforcement.
- Direct expenses: These involve extortion due to ransomware attacks or the costs associated with lawsuits, which often turn out to be the biggest expenses associated with a cyberattack. In cases where businesses failed to comply, the fines levied against them can be steep. Other common legal expenses include settlements and the unintended release of intellectual property or other confidential business information.
If you decide to take out cybersecurity insurance, it’s important to regularly review your policy. The cyberthreat landscape is constantly changing along with the effects of an attack.
The same is true with regulatory compliance For example, a policy might cover the costs of the data breach notifications and processes that must be carried out in the event of an incident. Because the true risk of cyberattacks is far from being completely understood, it’s important to realize that you can’t insure against everything.
Is cybersecurity insurance right for your business?
Cybersecurity insurance primarily covers first-party losses and third-party claims. The biggest limitation is that the former is often very hard to quantify and is vulnerable to misinterpretation. Important factors to consider include the size and scope of your organization, your budget, and the risks and potential liabilities facing your company.
Naturally, cybersecurity insurance is especially valuable for technology companies, but there are other ways to transfer the risks. One way a lot of smaller businesses do this is by outsourcing their IT to a third party with the necessary liability agreements in place. For example, healthcare companies can share the responsibility with managed services providers with whom they have business associate agreements.
In the end, taking out a cybersecurity insurance policy can be highly beneficial, but it’s not a fix-all solution.
Binatech offers IT services and support to businesses in Hamilton, Mississauga, and Buffalo. Call us today to schedule your free network assessment.
