The everyday occurrence of data breaches is pushing organizations across all industries to think more seriously about enhancing their risk management policies. With that in mind, we look at everything you need to know about cyber insurance, which is fast becoming another key component of the cybersecurity strategy.
Cyber liability insurance is a coverage policy that helps protect a business from data breaches and other cyber security issues, as well as recover from them.
Broadly speaking, there are two types of cyber insurance:
Third-party and fourth-party vendors are always a risk as far as security is concerned, with far too many breaches caused by excessive privileges, or an attacker exploiting a weakness further down the enterprise supply chain. Think of Target, Home Depot, and more recently, SolarWinds and Kaseya.
Most businesses would likely benefit from both types of coverage, especially in heavily regulated industries such as Healthcare, Utilities and Education.
Policies usually focus on the post-breach response services, such as:
Fun fact: Cyber insurance policies are nothing new. They were introduced in the ‘.com’ era, when they were focused on identity theft. Now they’re designed to ‘clean up after the mess’, in order to help organizations maintain their reputation and stay compliant.
We’ve been seeing how data breaches in general, and those caused via third party vendors in particular, are becoming as common as a cold but far more expensive to treat.
The challenge for businesses and insurers alike is keeping up with the incredible cost of cybercrime. According to a CNBC report, cybercrime is likely to cost $445 billion annually to the global economy.
Read more: What’s the cost of a data breach?
The Government Accountability Office says 47% of all insurance clients bought cyber insurance last year, compared to 26% five years ago. The premiums went up 29% in 2020 to $1.62 billion, according to the S&P global market trends, which shows how this industry is booming in the era of data breaches – sadly, for the wrong reasons.
In addition, the insurance industry’s loss ratio spiked in 2020 – that is, the amount they copay versus what they collect in premiums went up more than 25% from the previous year, according to CNBC.
Cyber insurance is not a license to practice poor security – you still need to have reasonable network security and data protection standards in place. In fact, some insurers will refuse to cover or pay out businesses that they deem to have insufficient defenses.
The standard will vary from one provider to another, but keep in mind there’s always a minimum required security level. This will not only allow you to access a cyber insurance plan, but it will also get you a heavily discounted premium for showing a respectable security posture.
Cyber insurance is an add-on to good security and compliance, not a standalone solution that will secure your business. It may be a great tool to help transfer and manage risk in the event of a data breach, but only if you apply it with adequate planning.
If you’re going to choose a cyber insurance plan, be aware of the Limitations and Exclusions, which could invalidate your entire plan or leave you as the sole responsible of paying for the damage. For example, some policies may not cover the loss of unencrypted data, lost data that was sent by third-party vendors, or data restoration services.
Cybersecurity experts often say suffering a data breach is not a matter of ‘if’ but ‘when’. In that case, it’s better to avoid being breached than relying on insurance to cover for the damage.
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