Cyber insurance protects your business against losses arising from cyber attacks.
As a small business owner, you want access to experts who can help you recover from a cyber attack. That way, you can stay focused on running your business. Cyber insurance helps you recover from the financial costs associated with a cyber incident—everything from fines and penalties to monetary loss.
In this post, you’ll learn why small businesses need cyber insurance and what questions to ask before buying coverage. Review our cyber insurance coverage checklist.
Any business that leverages technology and collects and stores data is at risk of a cyber attack. Without a dedicated cyber policy, most small businesses don’t have an adequate safety net to recover after a data breach.
Cyber insurance coverage protects businesses against the financial losses caused by unforeseen cyber incidents, including system hacking, data breaches and theft, denial of service, loss of data, and ransomware extortion payments. According to Hiscox’s Cyber Readiness Report of 2021, one-in-six of all firms attacked this year (17%) said the impact was serious enough to ‘materially threaten the solvency or viability of the company’.
Cyber insurance coverage helps businesses protect themselves against the losses or damage caused by data breaches and cyber attacks. In some states, small businesses also need cyber insurance to help them comply with regulations that require them to notify their customers of data breaches involving personally identifiable information. Cyber insurance can also help small businesses cover:
Cyber insurance policies typically come as first-party and third-party coverages. Let’s take a look at how these two types of coverage compare.
First-party coverage reimburses you for the financial loss associated with data breaches and cyber threats on your business. This type of policy simply protects your employee and customer data. It will reimburse you for costs related to:
A third-party cyber insurance policy, also known as liability coverage, pays for claims against your business by your clients as well as obligations you may have either under regulations, laws, or contracts. This coverage protects you when third parties accuse you or hold you responsible for damages if their information is compromised. Third-party coverage helps offset:
Cyber insurance may create a loophole for businesses that provide technology services. In this case, you can bundle third-party coverage with an errors and omissions policy (E&O). The E&O policy will kick in if a business’s product, service, or employee causes the cyber attack.
Cyber insurance coverage will cover these key elements:
A cyber insurance policy won’t reimburse you for every claim you make. Common cyber insurance exclusions include:
The evolution of cyber security threats offer a constant level of risk for a small business’s data and assets. Cyber insurance can provide the requisite protection, but you need an assessment of the potential risk areas and exposures. Here are some common cyber security exposures you need to consider:
If your business is considering investing in cyber insurance coverage, here are some questions to ask your insurance agent.
Most policies will provide first-party and third-party coverage, but you should also ask about the possibility of including policy add-ons. Don’t forget to ask about incidents that are excluded from coverage.
You may not uncover a cyber attack immediately after it happens. Therefore, you’ll want to know your insurance provider’s reporting timeframe. You should report a breach or incident to your insurance provider as soon as you have any suspicion that something may have occurred.
Some business industries have specific compliance rules, like HIPAA compliance for healthcare. Ask whether your potential insurer understands the data handling rules, compliance, and insurance requirements for your area of business.
Ask about what you will pay in premiums for a cyber insurance policy for your business. If your policy has a deductible, inquire about the impact it has on raising or lowering your premium. You’ll also want to explore potential savings through insurance discounts or bundling policies.
The cost that follows a cyber attack can be devastating. That’s why you need cyber insurance coverage to mitigate the financial losses. Perform due diligence when buying a policy, including asking your potential insurer about the cost of coverage, what incidents are covered, and how to make a claim.
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